Land rights and investment treaties

Transcription

Land rights and
investment treaties
Exploring the interface
Lorenzo Cotula
Land, Investment and Rights
As pressures on land and natural resources increase, disadvantaged groups risk
losing out, particularly where their rights are insecure, their capacity to assert these
rights is limited, and major power imbalances shape relations with governments and
companies. IIED’s Land, Investment and Rights series generates evidence around
changing pressures on land, multiple investment models, applicable legal frameworks
and ways for people to claim rights.
Other reports in the Land, Investment and Rights series can be downloaded from
www.iied.org/pubs. Recent titles include:
• Agro-industrial investments in Cameroon: large-scale land acquisitions since 2005.
2015. Nguiffo, S and Sonkoue Watio M. Also available in French.
• Understanding agricultural investment chains: lessons to improve governance.
2014. Cotula, L and Blackmore, E.
• Agricultural investments in Southeast Asia: legal tools for public accountability.
2014. Polack, E et al.
• Agricultural investments and land acquisitions in Mali: context, trends and case
studies. 2013. Djiré, M et al. Also available in French.
• Long-term outcomes of agricultural investments: lessons from Zambia. 2012.
Mujenja, F and Wonani, C.
Under IIED’s Legal Tools for Citizen Empowerment programme, we also share
lessons from the innovative approaches taken by citizens’ groups to claim rights
– from grassroots action and engaging in legal reform, to mobilising international
human rights bodies and making use of grievance mechanisms, through to
scrutinising international investment treaties, contracts and arbitration. Lessons
by practitioners are available on our website at www.iied.org/pubs. Recent
reports include:
• Democratising international investment law: recent trends and lessons from
experience. 2015. Cotula, L.
• Bringing community perspectives to investor-state arbitration: the Pac Rim case.
2015. Orellana, M et al.
• Advocacy on investment treaty negotiations: lessons from Malaysian civil society.
2015. Abdul Aziz, F.
• Community-based monitoring of land acquisition: lessons from the Buseruka oil
refinery, Uganda. 2015. Twesigye, B.
• Catalysing famers’ influence in shaping law reform: experience from Senegal.
2015. Coumba Diouf, N.
• Legal advice for environmental justice: experience from eastern India. 2015.
Upadhyay, S and Jain, S.
To contact IIED regarding these publications please email [email protected]
Land rights and
investment treaties
Exploring the interface
Lorenzo Cotula
IIED Land, Investment and Rights series
First published by the International Institute for Environment and Development (UK) in 2015
Copyright © International Institute for Environment and Development (IIED)
All rights reserved
ISBN: 978-1-78431-201-5
IIED order no.: 12578IIED
For copies of this publication, please contact IIED:
International Institute for Environment and Development
80-86 Gray’s Inn Road
London WC1X 8NH
United Kingdom
Email: [email protected]
Twitter: @iied
Facebook: www.facebook.com/theIIED
Download more publications at www.iied.org/pubs
A catalogue record for this book is available from the British Library.
Citation: Cotula, L. (2015) Land rights and investment treaties: Exploring the interface.
IIED, London.
Cover photo: A palm oil plantation in Central Africa. © Jan-Joseph Stok / Greenpeace
Typesetting: Judith Fisher, www.regent-typesetting.co.uk
Printed by Full Spectrum Print Media, an ISO14001 accredited printer in the UK, using
vegetable based inks on a 100% recycled material
Contents
Contents
Acronyms.............................................................................................................................. iii
Acknowledgements............................................................................................................ iv
About the author................................................................................................................. iv
Executive summary............................................................................................................. 1
1. Introduction..................................................................................................................... 6
1.1 Land governance, local to global............................................................... 6
1.2. About this report............................................................................................ 8
2. Setting the scene........................................................................................................10
2.1 Investment treaties in outline.....................................................................10
2.2 Land in investment treaties........................................................................13
3. Land reform..................................................................................................................15
3.1 Framing the issue.........................................................................................15
3.2 Typology of cases........................................................................................16
3.3 How investment treaties can affect land reform...................................20
3.4 To sum up......................................................................................................23
4. “Land grabbing”..........................................................................................................25
4.1 Framing the issue.........................................................................................25
4.2 Typology of possible cases.......................................................................28
4.3 The circumstances of land acquisition...................................................31
4.4 “Land grabbing” and “legitimate expectations”....................................33
4.5 To sum up......................................................................................................36
5. Other land governance issues.................................................................................37
5.1 Introduction....................................................................................................37
5.2 Do investment treaties facilitate land access for foreign
investors? ......................................................................................................37
5.3 Quality and capacity in land administration...........................................40
5.4 To sum up......................................................................................................42
6. Conclusion and ways forward.................................................................................43
6.1 Land rights and investment treaties: a far-reaching interface ..........43
6.2 Recommendations for governments........................................................46
6.3 Recommendations for parliaments, civil society and social
movements.....................................................................................................48
6.4 Reflections for a new research agenda..................................................49
6.5 Final remarks.................................................................................................49
References ........................................................................................................................51
i
ii
Land rights and investment treaties: exploring the interface
List of boxes
Box 1.1.The Voluntary Guidelines on the Responsible Governance of Tenure8
Box 3.1.Land reform in the VGGT
16
Box 3.2.Land restitution, human rights and investment treaties:
Sawhoyamaxa v. Paraguay18
Box 4.1.The global land rush
26
Box 4.2.“Land grab” deals in the shadow of investment treaties
28
Box 4.3.Beware of contested property: Awdi v. Romania 35
Box 5.1.Lack of coordination among government authorities can breach
investment treaties 41
iii
Acronyms
Acronyms
ASEAN
Association of Southeast Asian Nations
BIT
Bilateral investment treaty
CFS
United Nations Committee on World Food Security
COMESA
Common Market for Eastern and Southern Africa
ICSID
International Centre for Settlement of Investment Disputes
NGO
Non-governmental organisation
UK
United Kingdom
UN
United Nations
US United States
UNCITRAL United Nations Commission on International Trade Law
VGGT
Voluntary Guidelines on the Responsible Governance of Tenure of
Land, Fisheries and Forests in the Context of National Food Security
iv
Acknowledgements
This report was prepared for “Legal Tools for Citizen Empowerment”, a collaborative
initiative to strengthen local rights and voices in natural resource investments in low
and middle-income countries. It was produced with the generous support of Danida
(Denmark), Irish Aid and Sida (Sweden). The views expressed do not necessarily
represent those of the institutions involved.
In conducting the research, I have benefited greatly from the information, analysis
and legal materials available from Investment Arbitration Reporter (www.iareporter.
com), Investment Treaty Arbitration (www.italaw.com) and Investment Treaty News
(www.iisd.org/itn/).
Several people reviewed earlier drafts of the report, or specific parts of it, over the
period March to May 2015: Alessandra Asteriti, Thierry Berger, Luke E. Peterson,
Stephan Schill, Marco A. Velásquez Ruiz and Halina Ward. Their comments and
suggestions were of great help in finalising the report. While my heartfelt gratitude
goes to these reviewers, the responsibility for the views expressed and for any
remaining errors is mine.
Thanks also to Daphné Lacroix for taking the project from manuscript to publication;
and to Judith Fisher for making the report look so nice.
About the author
Lorenzo Cotula is a principal researcher in law and sustainable development at the
International Institute for Environment and Development (IIED), where he leads the
Legal Tools Team and the Legal Tools for Citizen Empowerment programme (www.
iied.org/legal-tools).
Executive summary
Executive summary
Land governance, local to global
The spread and deepening of economic globalisation has highlighted the ever
closer connections between the international legal arrangements governing the
global economy on the one hand, and claims to land and natural resources on the
other. In a globalised world, land governance is shaped by international as well
as national regulation. As pressures on valuable lands intensify and land relations
become more transnationalised, increasing recourse to international investment
treaties – the treaties concluded between two or more states to promote crossborder investment flows – is redesigning spaces for land claims at local and
national levels.
Over the past few years, investors have relied on investment treaties to bring a
growing number of international dispute settlement proceedings against states. In
some of these proceedings, investors have challenged the legality of state conduct
linked to land governance, and sought significant amounts in compensation.
The measures challenged included land reform programmes, handling of farm
occupations and termination of land transactions. Investors have also wielded
investment treaties to challenge land reform before national courts, while
governments have invoked them to resist indigenous peoples’ restitution claims
targeting land owned by foreign investors.
These connections between land rights and investment treaties are likely to
become increasingly prominent in the coming years, compounded in many
locations by the growing pressures on land from mining and petroleum projects,
agribusiness investments, special economic zones, tourism developments and
infrastructure projects. The recent wave of large-scale land deals for plantation
agriculture in low and middle-income countries (“land grabbing” in the critical
literature) could result in more investors bringing claims for land-related disputes.
Despite its growing importance, the interface between land rights and investment
treaties remains poorly understood, caught between preconceived positions and
limited in-depth analysis. A better understanding of that interface can help to rethink
land policies and investment treaties, at a time when both are forming the object of
much international debate.
1
2
This report sheds light on how investment treaties can affect land rights. It draws
on the legal analysis of investment treaties and how international tribunals have
interpreted them. The report finds that investment treaties can have far-reaching
implications for land reform, for public action to address “land grabbing” and more
generally for land governance frameworks. The report also charts directions for
socio-legal research to explore how investment treaties are affecting land rights on
the ground.
Land rights and investment treaties: a far-reaching interface
Investment treaties establish standards of treatment primarily aimed at protecting
foreign investment against adverse state conduct. They allow investors to seek
compensation for state conduct that breaches those standards, by bringing
investor-state arbitration claims to international arbitral tribunals. In some respects,
investment treaties reinforce international policy guidance setting parameters for
quality in land governance and reform processes.
But important distributive issues are also at stake, because investment treaties can
protect the landholdings of foreign investors against the legitimate land claims of
indigenous peoples, small-scale rural producers, the landless and more generally
poor and marginalised groups. By increasing the cost of land redistribution,
restitution or tenure reform, or of public action to address “land grabbing”,
investment treaties could enter into tension with progressive land policies –
including measures to implement recently developed and widely supported
international guidance on responsible land governance.
Investment treaties typically recognise that states have the right to expropriate
land in order to implement land reform. But they can also establish compensation
requirements that go beyond the standards applicable under national law, and
even international human rights law. At scale, applying these more stringent
requirements without considering historical injustices that may have occurred, and
without the flexibility allowed by international human rights law, can make it very
costly, and in that sense more difficult, for states to redistribute or restitute land, or
to reform land tenure regimes.
In relation to “land grabbing”, the legal protections enshrined in investment
treaties risk compounding any shortcomings in national governance. For example,
investment treaties could protect one-sided land deals that comply with national law
but dispossess rural people; a mechanical application of investment treaties might
enable investors to obtain compensation at full market value, even if they acquired
the land at less than market price; and the doctrine of “legitimate expectations”
could expose governments to liabilities for promises that public officials made to
investors before consulting communities. As states and non-state actors take
measures to tackle “land grabbing” and improve governance, the public purse may
have to shoulder the full costs that result for agribusiness companies.
Executive summary
Most investment treaties enable states to regulate the acquisition of land rights
by foreign investors. But depending on their formulation, “pre-establishment”
investment treaties can require states to remove restrictions on the acquisition of
land rights that treat foreign investors differently from local nationals. This could
foster commercialisation of land relations in places where land has important social,
cultural and spiritual value. Investment treaties could also expose governments
to liabilities for conduct caused by limited capacity in administrative or judicial
authorities.
Some recent international jurisprudence provides pointers on how arbitral tribunals
can consider the complexities of land relations in investment disputes – for example,
by excluding from protection investments made through corruption or other
illegality, or by considering whether investors were aware of the tenure risks when
they made the investment. But important questions remain, and much depends on
how these lines of jurisprudence will evolve in the coming years.
Empirical evidence on the actual extent to which investment treaties are affecting
land rights on the ground remains limited, not least because information is not in the
public domain and methodological challenges are at play. There is a need for sociolegal research on the operation of investment treaties, including in situations that do
not result in publicly known arbitrations and as such remain below the public radar.
However, the analysis of legal frameworks and the growing body of investorstate arbitrations do highlight the multiple channels that can connect international
investment treaties to local land rights. They indicate that investment treaties can
affect how the costs of socially desirable land governance action are distributed
among public and private actors. They also highlight the stark contrast between the
legal protections accorded to foreign investment, and the legal insecurity to which
many rural people are exposed worldwide.
As pressures on the world’s natural resources bring competing land claims
into contest, imbalances in the law regulating foreign investment raise probing
questions about whose rights are being protected and how. Land rights are
essential in realising human rights in many contexts, so addressing these
imbalances is not just a matter of policy choice, but a human rights imperative.
3
4
Recommendations for governments
As the primary actor in land governance and investment treaty making, governments
should:
●● Carefully think through their policy choices about whether to conclude, terminate
or renegotiate investment treaties, and in what form, including through systematic
reviews of existing investment treaties and their actual and potential ramifications.
●● Promote transparency in investment law and arbitration, to enable more inclusive
policy choices and facilitate better monitoring of the ways in which investment
treaties affect land rights.
●● Consider
the implications of existing investment treaties when designing and
implementing land governance action, to avoid or mitigate liabilities through wellthought out conduct.
●● Expedite
and upscale efforts to improve national land governance, through
implementing the Voluntary Guidelines on the Responsible Governance of
Tenure of Land, Fisheries and Forests in the Context of National Food Security.
●● If
new investment treaties are negotiated, consider treaty formulations that
align investment treaties to pursuit of sustainable development; that align
compensation standards to national constitutions and international human
rights law; that commit both host and home states to implement the Voluntary
Guidelines on the Responsible Governance of Tenure; and that spell out investor
obligations to comply with applicable law and possibly specified international
standards.
●● Ensure
that they have the capacity to comply with any investment treaties they
conclude; and where capacity challenges exist, consider treaty formulations that
recognise the differentiated capacities of the states parties.
Recommendations for parliaments, social movements, civil
society, researchers and donors
Land is eminently political, and often emotive. Choices on whether to conclude,
terminate or renegotiate investment treaties, and in what form, are also political.
Legitimacy of political choices rests on inclusive and informed debate. So
addressing the interface between land rights and investment treaties is not a
government job alone:
●● Parliaments should claim an important role in investment treaty making, using any
constitutional powers they may have in relation to investment treaties and more
generally holding debates, asking questions, raising issues, tabling motions,
expressing policy orientations and prompting the government to consider the
issues raised by social movements and civil society.
Executive summary
●● Social
movements including organisations of rural people and small-scale rural
producers can play a key role in representing and strengthening the voices of
their constituents in national and international policy processes concerning both
land rights and investment treaties.
●● Civil
society organisations should remain vigilant and step up advocacy on
investment treaties and their implications for land rights. They can play a key role
in promoting public awareness and debate; advocating and holding governments
to account; and developing arrangements for international alliance building and
lesson sharing. There is also growing experience with civil society submissions
to raise public and grassroots concerns in investor-state arbitration proceedings.
●● Researchers
should strengthen the evidence base to facilitate informed policy
debates and choices. There is significant scope and need for in-depth case
studies on the ways in which investment treaties operate in real-life situations,
including situations that do not result in publicly known arbitrations; on the
bearing that these treaties can have, directly or indirectly, on decision-making
processes; and on approaches to handle possible tensions between competing
policy objectives.
●● Donor
agencies should support the efforts of governments, parliaments, social
movements, civil society and researchers, through both technical and financial
support.
Final remarks
The interface between land rights and investment treaties highlights the need to
place discussions about investment treaties in a wider context. Investment treaties
protect foreign investors and their investments, within a bilateral relationship
between investor and government. But land-based investments can involve or
affect other actors too, including aspiring land reform beneficiaries and people
who may lose land to business ventures. Multiple national and international legal
instruments apply, and an exclusive focus on investment treaties risks producing
biased outcomes, even in reform efforts.
These considerations require giving proper thought to the overall legal frameworks
that govern land and investment, of which investment treaties are but one important
part. Protecting the land claims of some, without also taking action to protect
different and potentially competing land claims, can entrench imbalances in both
legal rights and power relations. In the longer term, solutions should lie less in legal
arrangements that insulate foreign investment from shortcomings in national legal
systems, and more in establishing fair and effective land governance that can cater
for the needs of all.
5
6
1. Introduction
1.1 Land governance, local to global
On 23 September 2014, a high court in Medellin, Colombia, ordered the restitution
of land to the Embera Katio, an indigenous community displaced by the armed
conflict. The court also ordered government authorities to suspend mining
concessions issued in the community’s land, and to ensure that the Embera
Katio are consulted before mining operations can resume.1 This judgment is part
of Colombia’s wider land restitution programme – in turn an important part of the
national process to deal with the return of the many displaced during the armed
conflict, and to consolidate peace through transitional justice.2
In July 2014, the government of the United Kingdom (UK) ratified the bilateral
investment treaty (BIT) it concluded in 2010 with the government of Colombia.
With this ratification, the treaty entered into force. Like the hundreds of investment
treaties currently in force worldwide, the Colombia-UK BIT establishes substantive
standards of treatment and legal remedies to protect UK investments in Colombia,
and vice versa.
These seemingly unrelated developments could soon come into closer contact.
Some of the mining companies affected by the land restitution judgment have
connections to the UK. Non-governmental organisations (NGOs) raised concerns
that the Colombia-UK BIT might enable UK companies to sue the government of
Colombia for losses suffered from land restitution, and that this could make it more
difficult for Colombia to implement the land restitution programme (ABColombia,
2014; see also ABColombia and Traidcraft, 2014).
The NGO concerns received public attention (e.g. Provost and Kennard, 2014),
but they did not halt the ratification process. However, they did have reverberations,
leading to a parliamentary debate on the Colombia-UK BIT in the House of Lords
– albeit after the treaty came into force. Concerns about land restitution featured
prominently in that parliamentary debate (House of Lords, 2014).
Whether and how UK-based companies will activate the Colombia-UK BIT to seek
compensation for land restitution, and how this will affect Colombia’s land reform
and peace building process, remain to be seen. And parliamentary debates about
the interface between land rights and investment treaties remain a rare occurrence
worldwide. But recent developments indicate that the issues are real and farreaching.
1. Resguardo Indígena Embera Katio de Alto Andágueda case.
2. Victims and Land Restitution Law No. 1448 of 1991. On this legislation, see Summers (2012), Velásquez-Ruiz
(2015) and, for a critical perspective, Martínez Cortés (2013).
1. Introduction
Over the past few years, the spread and deepening of economic globalisation
has highlighted the ever closer connections between the international legal
arrangements for the governance of the global economy on the one hand, and
claims to land and natural resources on the other. As pressures on valuable lands
intensify and land relations become more transnationalised, struggles over land
involve growing reliance on international law. In this context, investment treaties are
redesigning spaces for land claims at local and national levels.
Foreign investors have relied on investment treaties to bring growing numbers of
international dispute settlement proceedings against states. In some of these
proceedings, investors have challenged the legality of state conduct linked to
land governance, and sought significant amounts in compensation. The measures
challenged included land reform programmes, handling of farm occupations and
termination of land transactions. In other cases, investors have wielded investment
treaties to challenge land reform before national courts. Governments have also
invoked investment treaties to resist land restitution claims made by indigenous
peoples and targeting land owned by foreign investors.
These developments have affected countries in different parts of the world,
including Albania, Namibia, Paraguay, South Africa, Venezuela and Zimbabwe.
Investment disputes with a land governance dimension have also affected Chile,
Costa Rica, Egypt and Hungary. These developments illustrate the important
bearing that investment treaties can have on land governance – depending
on perspectives and circumstances, as a bulwark of the rule of law in the face of
arbitrary state conduct, or as an obstacle to socially desirable land policies.
These connections between land rights and investment treaties are likely to
become increasingly prominent in the coming years, compounded in many
locations by the growing pressures on land from mining and petroleum projects,
agribusiness investments, special economic zones, tourism developments and
infrastructure projects. The recent wave of large-scale land deals for plantation
agriculture in low and middle-income countries (“land grabbing” in the critical
literature), often occurring under the protection of investment treaties, could result
in many more investors bringing claims for land-related disputes.
Despite its growing importance, the interface between land rights and investment
treaties remains poorly understood, caught between preconceived positions
and limited research.3 A better understanding of that interface can help to rethink
land policies and investment treaties, at a time when both are forming the object
of much international debate: there is growing international debate on ways to
reform the investment treaty regime;4 while efforts to rethink land policies received
new momentum with the endorsement, in 2012, of the Voluntary Guidelines on the
3. Among the important exceptions, see Smaller and Mann (2009), Peterson and Garland (2010) and McAuslan
(2010). For my own work on this topic, see Cotula (2007, 2011a and 2013).
4. See e.g. the expert meeting “Transformation of the International Investment Agreement Regime: The Path
Ahead”, United Nations Conference on Trade and Development (Geneva, 25-27 February 2015, http://unctad.
org/en/pages/MeetingDetails.aspx?meetingid=643).
7
8
Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of
National Food Security (VGGT – see Box 1.1).
Box 1.1. The Voluntary Guidelines on the Responsible Governance of Tenure
The Voluntary Guidelines on the Responsible Governance of Tenure of Land,
Fisheries and Forests in the Context of National Food Security (VGGT) are the first
comprehensive global instrument that provides guidance to states and non-state
actors on how to promote responsible land governance.
The Guidelines were unanimously endorsed on 11 May 2012 by the Committee on
World Food Security (CFS), which is the top United Nations (UN) body in matters of
food security. Endorsement by CFS followed two years of extensive multi-stakeholder
consultations and one year of inter-governmental negotiations.
The VGGT call for the recognition and protection of all “legitimate tenure rights”
and provide guidance on land restitution, land redistribution, land tenure reform,
agribusiness investments and land administration, among other issues.
While not legally binding per se, the VGGT have received widespread expressions of
high-level political support, including from the UN General Assembly, the G8 and the
G20. Some VGGT provisions reflect binding international law, including provisions on
gender equality and respect for human rights.
1.2. About this report
This report sheds light on the interface between land rights and investment treaties.
It draws on the legal analysis of investment treaties and how international tribunals
have interpreted them, in relation to selected land governance issues. Land rights
have global relevance, but the report’s main concern is about low and middleincome countries. The report primarily targets practitioners and researchers
working on the governance of land and investment. It aims to promote debate about
how investment treaties can affect land rights, and what can be done to address the
issues raised.
The report argues that, in a globalised world, land governance is shaped by
international as well as national law. Public action that neglects this international
dimension can result in ill-informed policy choices, and potentially in significant
liabilities. Investment treaties can particularly affect land governance in three
interlinked areas, requiring careful thinking through: land reform, including
redistribution, restitution and tenure reform; measures to address “land grabbing”
and pressures on land; and more generally the functioning of land governance
systems.
These findings identify the multiple channels through which investment treaties
can affect land rights. They indicate that states may have to bear the costs of
land governance action, compensating affected foreign investors for actual and
1. Introduction
projected losses. Measuring the extent to which these channels affect public
action in practice raises empirical questions requiring further socio-legal research
– including in situations where reliance on investment treaties affects investor-state
negotiations without resulting in publicly known arbitrations. The report identifies
issues that might help to frame that socio-legal research, acting as a scoping study
for a longer-term body of work. It also outlines recommendations for policy and
practice, based on the findings of the legal analysis.
A few caveats are in order. First, investment treaties are not the only legal instrument
that protects the landholdings of foreign investors. National law typically does that
too, including through constitutional right-to-property provisions. International
human rights law is also relevant, because the internationally recognised human
right to property may protect property against redistributive action.5 However, this
report focuses on investment treaties because they are a neglected issue in the
land governance literature; and because, as will be seen, investment treaties can
establish more stringent requirements than national law and international human
rights law.
Second, the interface between land rights and investment treaties raises sensitive
socio-political issues. Land has important social, cultural and spiritual value in many
societies. There are often polarised views on the merits and demerits of economic
globalisation, of which investment treaties are an important enabler. Major
economic interests are at stake in both land rights and investment treaties. And
policy choices on both land rights and investment treaties are eminently political.
The report recognises these sensitivities but focuses on technical legal issues.
However, it also argues that the political sensitivities point to the need for greater
public participation in policy making.
Finally, the legal issues involved are complex and dry, and it is easy to lose sight of
the people whose livelihoods are at stake behind the intricacies of the legal norms.
The report aims to keep the discussion accessible, without however compromising
on accuracy, and while recognising that often “the devil is in the detail”. However,
the discussion of issues is inevitably synthetic and glosses over much technical
complexity.
The remainder of the report is structured as follows. The next chapter provides a
brief overview of key features of the investment treaty regime, and how it intersects
with land governance. The subsequent three chapters discuss key issues at the
interface between land rights and investment treaties: land reform, including
redistribution, restitution and tenure reform; public action to address issues linked
to “land grabbing” and pressures on land; and other issues concerning land
governance. The conclusion summarises key findings and charts possible ways
forward.
5. E.g. James and Others v. United Kingdom and Holy Monasteries v. Greece.
9
10
2. Setting the scene
2.1 Investment treaties in outline
International investment law is the body of international law concerning the
treatment of foreign investment. There is no global treaty that sets standards of
treatment for foreign investment, and there is no global institution comparable to
the World Trade Organization. Rather, international investment law is centred on
a network of over 3,000 bilateral or regional investment treaties. These treaties
are concluded between two or more states, and aim to promote investment flows
between the state parties by establishing obligations about how investments by
nationals of one state will be admitted and protected in the territory of the other
state.
Investment treaties must be distinguished from investment contracts. The latter may
be concluded between an investor and a state for a specific investment project.
Examples include establishment conventions, host government agreements and
land concessions or leases. Investment treaties, on the other hand, are concluded
between states and apply to all covered investors and investments. Most such
treaties are bilateral investment treaties (BITs), but regional or bilateral trade
agreements that contain an investment chapter are increasingly common. Because
international investment law is dominated by bilateral and regional treaties, the law
applicable to different investments may vary depending on their respective host and
home states.
Many treaties present broadly comparable terms and significant uniformity of
underlying principles (Schill, 2009). Yet the detailed wording can vary considerably,
and so too can the specific standards of treatment to which investors are entitled.
Commonly used standards of treatment include:
●● “National
treatment” and “most-favoured-nation” clauses that typically
require states to treat foreign investors or investments no less favourably than
investments in similar circumstances by their own nationals (national treatment)
or by nationals of other states (most-favoured nation treatment).
●● “Fair
and equitable treatment” clauses that require states to treat foreign
investment according to a minimum standard of fairness, irrespective of the rules
they apply to domestic investment under national law.
●● “Full
protection and security” clauses, which are usually interpreted as requiring
states to take steps to protect the physical integrity of foreign investment, but
have in some cases been interpreted more broadly to cover legal protection too.
●● Clauses
that limit a government’s ability to expropriate foreign investments.
These often state that any expropriation must be for a public purpose, be
non-discriminatory, and that governments must follow due process and pay
compensation according to specified standards typically linked to market value.
●● Provisions on currency convertibility and profit repatriation, which allow investors
to repatriate returns from their activities.
Most-favoured-nation clauses can allow investors to claim more favourable
treatment provided by treaties between the host state and states other than the
country where investors are based. So in order to understand the full implications of
one investment treaty, it is important to consider all the other treaties that the state
may have concluded. In effect, most-favoured-nation clauses level the playing field
upwards, because investors and investments operating in one state may be entitled
to the most favourable treatment provided by any of the treaties ratified by that state.
As well as determining substantive standards of treatment, most investment treaties
allow investors to choose to bring disputes against the host state to international
investor-state arbitration, rather than national courts. There are several international
arbitration centres, each with its own procedural rules. One prominent institution
is the World Bank-hosted International Centre for the Settlement of Investment
Disputes (ICSID). ICSID sees dozens of arbitrations per year. Arbitrations can also
be carried out outside any standing institutions, often following the rules adopted by
the United Nations Commission on International Trade Law (UNCITRAL Arbitration
Rules).
In investor-state arbitration, the investor typically alleges that the state has violated
the treaty, and will usually seek monetary compensation. In deciding the case, the
tribunal issues a binding award — effectively a document similar to a judgment. If the
tribunal finds treaty violations, it usually orders the state to compensate the investor.
Widely ratified multilateral treaties facilitate the enforcement of these awards.6 If a
host state fails to comply with an award covered by one of these multilateral treaties,
the investor may seek enforcement in any signatory country where the host state
holds interests, for instance by seizing goods or freezing bank accounts. Because
in a globalised world virtually all states hold assets overseas, this type of legal action
can be effective. In addition, governments are often under pressure to honour
arbitral awards in order to keep attracting investment, although in recent years some
states have refused to pay awards.
Traditionally, there has been little transparency in investor-state arbitration. There
have now been major advances in some arbitration systems, including ICSID and
new UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration
(“Transparency Rules”). Several recent investment treaties also contain provisions
6. Namely, the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and,
for ICSID awards, Article 54 of the 1965 Convention on the Settlement of Investment Disputes between States
and Nationals of Other States (“ICSID Convention”).
11
12
promoting transparency in arbitration. However, transparency remains limited or
non-existent in other areas: under some arbitration rules, it is still possible for the
public not to be aware that a dispute exists, and access to arbitration documents
remains constrained. For these reasons, this report only draws on publicly known
arbitrations.
This ability of private actors directly to access international redress is unusual in
international law. It constitutes an important difference compared to international
trade law, for example, where only states can bring disputes about alleged treaty
violations. International human rights law allows individuals to access international
remedies, but (unlike most investment treaties) usually only after individuals have
unsuccessfully pursued remedies available under national law.
Unlike investor-state arbitration based on contracts between investors and states,
investment treaties effectively contain unilateral advance offers of consent to
arbitration on the part of the states. As such, they expose governments to claims
from an unknown and potentially large number of investors. And unlike many
other international instruments, investment treaties and arbitration are assisted by
relatively effective enforcement mechanisms, and as such they can have real bite
and far-reaching financial implications for states.
There has been much controversy about the extent to which the risk of incurring
liabilities based on investment treaties can restrict the ability of states to act in the
public interest. The question is whether the prospect of having to pay substantial
amounts in compensation and/or in legal costs might discourage states from taking
desirable land governance action. Empirical evidence of this “regulatory chill”
is difficult to find, partly because information is not in the public domain; because
counterfactuals (whether authorities would have acted differently in the absence, or
presence, of an applicable investment treaty) are not available; and because biases
undermine the evidence base (e.g. we can more easily find out about the cases
where authorities did act, resulting in publicly reported investor-state disputes; see
Bonnitcha, 2014a).
However, reports that even high-income countries consider the risk of liabilities in
their policy-making processes (e.g. Peterson, 2013) highlight the need not to be
complacent about the restrictions that investment treaties can create, particularly
in low and middle-income countries where public finances face harder constraints.
And irrespective of any “regulatory chill”, the financial implications of investment
treaties raise real questions about how the costs of socially desirable public action
should be distributed between public and private actors. So while follow-on sociolegal research can shed more light on “regulatory chill” in land governance, it is
important to discuss the legal relationships between land rights and investment
treaties even if it is still difficult to provide, based on publicly available evidence
alone, systematic evidence of situations where investment treaties have prevented
desirable land governance action.
2.2 Land in investment treaties
Investment treaties typically define the types of investments and investors they
cover. The treaty clauses that define “investment” and “investor” determine
the scope of application of the treaty. Most treaties include landholdings in the
definition of investment. Indeed, investment treaties commonly adopt a very broad
definition of investment, often centred on a general clause (e.g. “every kind of
asset”) and an illustrative list of assets, typically including immovable property and
natural resource concessions.
Immovable property would cover proprietary interests in land, and natural resource
concessions would cover land concessions or leases. Some treaties make this
more explicit, by referring to “concessions to search for, cultivate, extract or
exploit natural resources”.7 Some treaties restrict the application of some of their
provisions to land rights. For example, some investment treaties exclude land from
the application of aspects of the investment treaty protection against expropriation.8
Investment treaties typically consider company shares to constitute a covered
investment, so the corporate structures through which foreign investors hold land
would also be protected. Based on these provisions, foreign investors holding land
rights would be entitled to the treatment provided by an applicable treaty – and also
by other relevant treaties, by virtue of any applicable most-favoured-nation clause.
They would also be entitled to bring land-related investment disputes with the host
state to investor-state arbitration.
Land has formed the object of international disputes since the early 20th century,
for example where agrarian reforms or land occupations in Latin America affected
land owned by foreign nationals.9 In the 1930s, the expropriation of land owned
by United States (US) nationals as part of Mexico’s agrarian reform triggered
celebrated diplomatic correspondence between the US and Mexican governments.
In that correspondence, US Secretary of State Cordell Hull argued that
customary international law required states to pay prompt, adequate and effective
compensation where foreign investment is expropriated (Mexico-United States,
1938). This standard of compensation has come to be known as the “Hull formula”,
and is widely used in contemporary investment treaties (Reinisch, 2008). These
evolutions reflect the important role that land disputes played in the historical
development of international investment law.
7. Ethiopia-UK BIT 2009, Article 1(a)(v), emphasis added. Other UK treaties use similar formulations (e.g. Article
1(a)(v) of Laos-UK BIT 1995 and Tanzania- UK BIT 1999, and Article 2(a)(v) of Colombia-UK BIT 2010), as do
some treaties concluded by Malaysia (e.g. Chile-Malaysia BIT 1992, Article 1(a)(v)).
8. E.g. ASEAN Comprehensive Investment Agreement of 2009, Article 14, footnote 10.
9. See e.g. United States of America on Behalf of Marguerite de Joly de Sabla v. The Republic of Panama.
This arbitration was between the home and host states, as it was settled before the development of investment
treaties and treaty-based arbitration.
13
14
In more recent times, the first ever investor-state arbitration brought under an
investment treaty related to the destruction of a shrimp farm in an armed conflict
situation.10 While nowadays many investment disputes relate to sectors with limited
connections to land rights (e.g. banking, telecoms), land continues to form the
object of investment disputes – in relation not only to agriculture (which accounts
for 4% of arbitration claims taken to ICSID; see ICSID, 2015) but also to extractive
industries, real estate development or tourism (see Chapter 5).
With over 3,000 investment treaties concluded worldwide and over 600 publicly
known investor-state arbitrations, the expanding reach of international investment
law has redefined the boundaries for lawful public action. The range of land
governance measures that could come under challenge through investor-state
arbitration is very broad: from land expropriation for redistribution or restitution,
to failure to protect landholdings from occupations or incursions and efforts
to renegotiate land concessions, through to land zoning regulations and more
generally shortcomings in land governance systems. State conduct may include
action or inaction by local or central government agencies, but also legislation
adopted by parliament or the conduct of national courts.
10. Asian Agricultural Products Ltd v. Republic of Sri Lanka.
3. Land reform
3. Land reform
3.1 Framing the issue
For a long time, states have enacted multiple types of land reform in pursuit of
diverse policy objectives – from addressing historical injustices to promoting more
equitable land distribution, through to encouraging investment in agriculture and
promoting political stability. Many states with highly concentrated land ownership
structures have implemented redistributive land reforms for decades, although
political momentum for reform has fluctuated over time. In fact, several states
have recently enacted law reforms to facilitate land acquisition by larger-scale
commercial operators, leading some NGOs to denounce what they dubbed
“agrarian reform in reverse” (GRAIN, 2015). But land redistribution programmes
are currently underway in several countries.
Political transitions since the early 1990s triggered major land restitution
programmes, for example in some Eastern European, African and Latin American
countries. Globally, there has been considerable activity in the area of land tenure
reform – that is, reform aimed at changing the nature and content of land rights, for
instance to make these rights more secure. The VGGT call for reform in important
land policy areas, so implementing the VGGT may involve increased land reform
activity in the coming years (see Box 3.1).
Land reform programmes can create some of the most obvious intersections
between land rights and investment treaties. This can include situations where
public authorities expropriate land held by foreign investors in order to reallocate
it to disadvantaged groups (redistribution) or to people advancing historical land
claims (restitution). But it can also include cases where reforms privatise stateowned enterprises that may have developed partnerships with foreign investors;
where reforms affect the content of the land rights held by foreign investors (tenure
reform); or where authorities fail to protect foreign landholdings from invasions or
occupations, including by people advocating for land reform.
15
16
Box 3.1. Land reform in the VGGT
The VGGT contain numerous provisions on land redistribution, restitution and
tenure reform. They provide that states should consider land redistribution “for
social, economic and environmental reasons, among others, where a high degree
of ownership concentration is combined with a significant level of rural poverty
attributable to lack of access to land” (VGGT paragraph 15.3). Where states choose
to implement redistributive reforms, they should clearly define the objectives of the
reform programme and its intended beneficiaries, enact measures to make the reform
sustainable and ensure that reform beneficiaries can earn an adequate standard of
living from the land (VGGT paragraphs 15.5-6).
In addition, the VGGT provide guidance on the restitution of land to historically
dispossessed people. States should consider providing restitution for the loss of
“legitimate tenure rights”; restitution may involve actual return of the land or, where this
is not possible, monetary or in-kind compensation (VGGT section 14).
Finally, the VGGT provide extensive guidance on land tenure reform. For example, the
VGGT call for legal protection of all “legitimate tenure rights”, including customary
rights that in several countries may currently have no legal recognition (VGGT
paragraphs 3A, 4.4 and 5.3, among others). The VGGT also contain detailed
provisions on safeguarding all “legitimate tenure rights”, including customary and
unrecorded rights, in land allocation processes (VGGT section 7); protecting the land
rights of indigenous peoples (VGGT section 9); and acknowledging informal tenure
(VGGT section 10).
3.2 Typology of cases
a) Redistribution
Land redistribution programmes have given rise to several investor-state
arbitrations. Investors have claimed that state conduct violated expropriation
clauses included in applicable investment treaties. These clauses determine
the conditions for the legality of expropriations. While the wording varies, these
conditions typically include public purpose, non-discrimination and payment of
compensation at specified standards. Investors have also relied on the fair and
equitable treatment standard.
Publicly known investor-state arbitrations relating to land redistribution include
Bernardus Henricus Funnekotter and Others v. Republic of Zimbabwe – an
arbitration concerning Zimbabwe’s controversial fast-track land redistribution
programme; Bernard Von Pezhold and Others v. Zimbabwe and Border
Timbers Limited, Border Timbers International (Private) Limited, and Hangani
Development Co. (Private) Limited v. Republic of Zimbabwe – two ongoing
arbitrations also concerning land redistribution in Zimbabwe; and Vestey Group
Ltd v. Bolivarian Republic of Venezuela – an ongoing arbitration concerning the
3. Land reform
expropriation of landholdings in Venezuela.11 Landowners have also invoked
investment treaties in litigation on land redistribution before national courts, for
example in Namibia,12 though scope for this depends on the extent to which
national law allows courts directly to apply international treaties.
In line with the formulation of expropriation clauses in investment treaties, arbitral
tribunals have recognised the right of states to expropriate property for land
redistribution purposes, provided that legal requirements are complied with. In
Bernardus Henricus Funnekotter and Others v. Republic of Zimbabwe, the arbitral
tribunal held that land expropriation breached the applicable investment treaty
because the government of Zimbabwe had not paid just compensation as required
by the relevant treaty clause. The tribunal ordered Zimbabwe to compensate the
claimants.
Tribunals have also elaborated on how to determine compensation. Most
investment treaties require compensation to be based on market value. The
Funnekotter tribunal clarified that “the genuine value of the properties does not
correspond to the value of the arable land plus the estimated value of the various
buildings and equipments which are necessary for the operation of the farms.
Genuine value must be determined on the basis of the market value of the whole
farm at the time of expropriation” (para. 130).
b) Restitution
Investment treaties may come into play in land restitution programmes as well.
There are no known treaty-based investor-state arbitrations directly relating to the
restitution of rural land. But one recent arbitration concerning real estate in Romania
– Hassan Awdi, Enterprise Business Consultants, Inc. and Alfa EL Corporation v.
Romania – partly hinged on public action to return property confiscated during the
communist era. This case is discussed further below (Chapter 4). The relationship
between investment treaties and land restitution has also emerged in international
human rights jurisprudence, for example in a case where a state resisted the
restitution of land claimed by indigenous people partly on the ground that the land
was now owned by foreign investors protected by an applicable BIT (see Box 3.2).
11. Initiated in 2006, this arbitration was suspended for six years, as the parties reported to have reached a
settlement, but was resumed in 2012. See Hepburn and Peterson (2012a).
12. Günter Kessl, Heimaterde CC and Martin Joseph Riedmaier v. Ministry of Lands and Resettlement and
Others. Much of the legal argumentation concerned alleged violations of human rights recognised by the
Constitution, and of procedural safeguards established by national land law. But the applicants, all German
nationals, also referred to the protection provided by the Germany-Namibia BIT 1997.
17
18
Box 3.2. Land restitution, human rights and investment treaties: Sawhoyamaxa v.
Paraguay
In Sawhoyamaxa v. Paraguay, an indigenous community claimed restitution of their
ancestral lands. Decades of colonisation by non-indigenous groups and penetration
of the market economy had dispossessed the community of their land, leading to
conversion to private ownership, land sales and the fencing of communal land.
The community initiated national law proceedings for land restitution in 1991, and
eventually took the case to the Inter-American Court of Human Rights. The Paraguayan
government resisted restitution, partly on grounds that the claim “collide[d] with a
property title which has been registered”, lastly with a German investor protected under
the Germany-Paraguay BIT. The suggestion was that land restitution would infringe
upon the investor’s property, breaching the investment treaty (paras. 115(b), 125 and
137 of the judgment).
In its 2006 judgment, the Inter-American Court noted that the investment treaty did not
prohibit expropriation – it merely subjected its legality to certain conditions, including
public purpose. The Court also held that land restitution aimed at realising the collective
right to property of indigenous peoples could constitute public purpose, and ordered
land restitution within three years.
In 2014, after twenty-three years of legal wrangling, Paraguay passed a law providing
for the expropriation of the land and its restitution to the Sawhoyamaxa community
(Law No. 5194 of 12 June 2014). A constitutionality challenge brought by the
companies owning the property was rejected by Paraguay’s Supreme Court of Justice
in September 2014 (Corte Suprema de Justicia, Judgment No. 981 of 30 September
2014). It remains to be seen whether the implementation of this law will give rise to
investor-state arbitration claims based on the Germany-Paraguay BIT, and with what
consequences.
c) Privatisation
Measures to privatise state farms have resulted in investor-state arbitration – for
example, where land owned by state enterprises is transferred to local farmers.
In Tradex Hellas S.A. v. Republic of Albania, a Greek investor established a joint
venture with an Albanian state-owned enterprise to develop an agribusiness
operation in Albania. The Albanian enterprise owned the land and contributed it to
the joint venture. As part of its transition from a socialist regime, Albania established
a programme to privatise the land owned by farming cooperatives. It later extended
this programme to state-owned enterprises. So after the launch of the joint venture,
Albanian authorities privatised a significant part of the joint venture’s land. As a
result, the parties dissolved the joint venture and authorities transferred the land to
villagers in the area.
The investor claimed that the measures constituted an expropriation and filed an
arbitration seeking compensation based on Albanian legislation and the Albania-
3. Land reform
Greece BIT of 1991. However, the arbitral tribunal found that it only had jurisdiction
to consider expropriation claims based on Albanian legislation, as the BIT was
not in force at the time of the facts.13 The tribunal also found that, based on the
specific facts of the case, the contested measures did not amount to expropriation.
It refused to award compensation and ordered each party to bear its own legal
costs.14
d) Invasions and occupations
Arbitration claims have also arisen from alleged failures on the part of public
authorities to protect landholdings against invasions, occupations or incursions,
including those that rural people carried out to increase pressure for land
redistribution, restitution or privatisation. Some arbitrations involved contestation
around both land occupations and formal reform programmes (e.g. Tradex Hellas
v. Albania).
Arbitral awards have interpreted the “full protection and security” standard
included in many investment treaties as requiring states to act with due
diligence in protecting landholdings held by protected foreign investors against
encroachments, invasions or occupations by individuals or groups.15 In one
undisclosed arbitral award, the tribunal reportedly found that South Africa breached
the full protection and security standard for failure to protect the landholding of a
foreign investor against incursions from nearby communities (Peterson, 200816).
e) Tenure reform
Land tenure reform can also adversely affect investments. As discussed, this type
of reform involves changes to the nature and content of tenure rights. Examples may
include reforms that alter the nature of the land rights held by investors, for instance
converting land ownership into long-term leases or changing the duration of land
leases. Tenure reform might also tighten compensation requirements applicable
to the land expropriations necessary for implementing agreed investment projects.
Where investors bear the costs of compensation, these new requirements could
increase the operating costs of investments. In addition, reforms to introduce or
tighten community consultation or consent requirements may delay investments.
Tenure reform may come under scrutiny for alleged violations of fair and equitable
treatment and expropriation clauses. The latter typically cover regulatory measures
that, while not transferring ownership title, substantially deprive investors of their
property (“indirect expropriation”).
13. Tradex Hellas S.A. v. Albania, Decision on Jurisdiction.
14. Tradex Hellas S.A. v. Albania, Award.
15. Asian Agricultural Products Ltd v. Republic of Sri Lanka, paras. 49-50 and 67. This case does not concern
land reform.
16. This article is based on reading the arbitral award, which is not publicly available.
19
20
Land tenure reform has not yet resulted in publicly known investor-state arbitrations.
However, investors have brought arbitrations in relation to tenure reforms in
the mining sector. In Piero Foresti and Others v. The Republic of South Africa,
investors challenged South African mining legislation that changed the nature
of the mining rights held by investors (as well as measures to transfer minority
shareholdings to historically disadvantaged groups, as part of South Africa’s Black
Economic Empowerment programme). The investors ultimately discontinued this
arbitration, so the arbitral tribunal did not decide on the tenure reform issue.
3.3 How investment treaties can affect land reform
The above discussion shows the diverse land reform issues that could arise
in investor-state arbitration. It highlights that investment treaties recognise the
sovereign right of states to implement land reform. For example, investment treaties
allow states to expropriate the landholdings of protected investors so long as
expropriation complies with certain conditions, including payment of compensation
at specified standards. In the past, states have enacted various types of reform
programmes in the presence of BITs.
In some respects, investment treaties reinforce the provisions of the VGGT, by
providing safeguards against arbitrary state conduct. The VGGT consider respect
for the rule of law to be a key “principle of implementation” (VGGT paragraph
3B.7). They state that land redistribution should “follow the rule of law”, and that
those who lose land to redistributive reform “should receive equivalent payments
without undue delay” (VGGT paragraph 15.4). The VGGT also call for transparent
and accountable reform processes, and for “due process and just compensation
according to national law” (VGGT 15.9; see also VGGT paragraphs 16.1 and 16.3).
In addition, VGGT provisions on land redistribution and restitution emphasise the
need for states to act consistently with their obligations under applicable national
and international law, which would include any relevant investment treaties (VGGT
paragraphs 14.1 and 15.4).
However, by requiring payment of compensation at specified standards, allowing
investors to bring claims to investor-state arbitration and providing relatively effective
avenues to enforce arbitral awards, investment treaties can make it more costly
for states to take action. As a result, concerns have been raised that investment
protection risks crystallising historical injustices, particularly in low and middleincome countries where public finances may face harder constraints (Peterson and
Garland, 2010; Vervest and Feodoroff, 2015). And where governments do not wish
to implement land reform due to the interplay of vested interests and power relations,
investment treaties could provide governments with legal arguments to legitimise
political choices.
3. Land reform
Other legal instruments can also protect the landholdings of foreign investors,
including national legislation and international human rights law. But investment
treaties tend to establish more stringent requirements, making these concerns
particularly relevant. Take the issue of compensation for expropriations.
Historically, this has been a much-debated issue in international law. The VGGT
link compensation standards to national law (VGGT paragraphs 15.9, 16.1, 16.3),
though as discussed the VGGT provisions on land redistribution and restitution also
refer to international obligations (VGGT paragraphs 14.1 and 15.4).
Investment treaties set compensation standards that can go significantly beyond
national law requirements. Many investment treaties require compensation at market
value. Arbitral tribunals have defined fair market value as “the amount which a willing
buyer would have paid a willing seller for the shares of a going concern”.17 For
commercially viable businesses, compensation at market value usually includes loss
of projected future profits as well as sunk investments. This exclusive emphasis on
market value contrasts with the approach taken in some national constitutions, and
even in international human rights law.
In Europe, for example, the right-to-property jurisprudence of the European Court
of Human Rights is centred on the notion of a “fair balance” that must be struck
between individual and collective interests. In determining whether national
authorities have struck a fair overall balance, the Court considers all relevant
circumstances. Compensation is but one important factor in this assessment.
As a result, while compensation must be “reasonably related” to market value,
it can be less than market value, provided that the overall balance struck is fair.18
In addition, the nature of the public purpose pursued may be taken into account
when determining compensation, potentially justifying compensation below market
value.19
Similarly, some national constitutions refer to criteria other than market value in
determining compensation. For example, the South African Constitution requires
payment of “just and equitable compensation”, which must reflect “an equitable
balance between the public interest and the interests of those affected, having
regard to all relevant circumstances”. These circumstances include the market value
of the property, but also the current use of the property, the history of its acquisition
and use, and the purpose of the expropriation.20 Consideration of these factors may
well result in compensation below market value. National constitutions might also
allow a degree of flexibility on the timing of compensation, and on its form (e.g. cash
vs bonds, local vs international currencies).
17. Ina Corporation v. The Government of the Islamic Republic of Iran, p. 380. See also Asian Agricultural
Products Ltd v. Republic of Sri Lanka, para. 96.
18. James and Others v. United Kingdom, para. 54; Lithgow and Others v. United Kingdom, para 121.
19. James v. United Kingdom, paras. 46, 54.
20. Constitution of the Republic of South Africa of 1996, Article 25(3).
21
22
By contrast, investment treaties usually make no reference to striking a “fair
balance”, or to a wider set of factors beyond market value. Expropriations must meet
lawfulness conditions one by one (for example, compensation at market value, public
purpose and non-discrimination),21 leaving little room for consideration of overall
fairness. One arbitral tribunal explicitly excluded that the nature of the public purpose
could justify lower compensation.22 As a result, investment treaties can require
higher compensation than would be applicable under national constitutions or
international human rights law. Many investment treaties also require compensation
to be paid “without delay” and with interest, and to be “effectively realizable and
freely transferable”.23
Compensation requirements may prove particularly onerous in large-scale agrarian
reforms, which may involve the expropriation of many properties. There has been
debate about whether large-scale nationalisations may allow states to discount
compensation amounts.24 International human rights jurisprudence admits that
large-scale nationalisation may result in lower compensation amounts for the
individual properties expropriated.25
On the other hand, one recent investor-state arbitral tribunal has explicitly ruled
out the possibility that states may discount compensation in large-scale agrarian
reform programmes, noting that under the relevant investment treaty investors are
entitled to market-value compensation “independently […] of the number and aim
of the expropriations done”.26 The wording of investment treaties varies, and some
authors have argued that the succinct reasoning of the tribunal in this recent case
has not quelled debates about the merits of discounted compensation in the case of
large-scale agrarian reforms (Peterson and Garland, 2010). However, there is little
to suggest that future arbitral tribunals applying market value clauses in investment
treaties would decide this issue in different ways.
Some states have raised explicit concerns about the compensation standards
included in investment treaties, particularly in connection with agrarian reform. Brazil
signed 14 BITs in the 1990s but did not ratify any of those. Opposition by Congress
was a key reason for non-ratification. Among other issues, Congress deemed
21. See e.g. Bernardus Henricus Funnekotter and Others v. Republic of Zimbabwe, para. 98.
22. Compañía del Desarrollo de Santa Elena, S.A. v. Republic of Costa Rica, paras. 71–72. This arbitration was
not based on an investment treaty.
23. E.g. Germany-Philippines BIT 1998, Article 4(2); Kenya-UK BIT 1999, Article 5(1); Rwanda-US BIT 2008,
Article 6(2)-(3); Colombia-India BIT 2009, Article 6(3); Japan-Mozambique BIT 2013, Article 12(3).
24. In Ina Corporation v. The Government of the Islamic Republic of Iran, the tribunal held that customary
international law could require less than full compensation for large-scale nationalisations, although the members
of the tribunal disagreed on the meaning and implications of this statement. The tribunal went on to decide
the case on the basis of an applicable treaty and ordered payment of full compensation (p. 378). See also the
reference to debates as to whether “systematic large-scale nationalization, e.g., of an entire industry or a natural
resource” may justify “less than full compensation” in SEDCO Inc v. National Iranian Oil Co. & Islamic Republic
of Iran, p. 1264.
25. In Lithgow and Others v. United Kingdom, the European Court of Human Rights held that, so long an overall
fair balance is struck, “the standard of compensation required in a nationalisation case may be different from that
required in regard to other takings of property” (para. 121).
26. Bernardus Henricus Funnekotter and Others v. Republic of Zimbabwe, para. 124.
3. Land reform
aspects of the compensation requirements included in the BITs to be incompatible
with the agrarian reform provisions of the Brazilian Constitution (WTO, 2013, para.
2.29). In 2015, Brazil concluded new “Investment Facilitation and Cooperation
Treaties” with Angola and Mozambique that do not allow investor-state arbitration.27
Compensation issues aside, the interface between land reform and investment
treaties has other dimensions too. For example, some arbitral tribunals have
considered legal stability to be a key element of the fair and equitable treatment
standard28 – although other tribunals have recognised that investors should expect
laws to change over time, especially when they operate in countries undergoing
political transition.29 Ambitious land reform programmes may involve multiple legal
changes over time. In Namibia, for example, the Agricultural (Commercial) Land
Reform Act No. 6 of 1995 was amended by the Agricultural (Commercial) Land
Reform Amendment Acts No. 16 of 2000, 13 of 2002, 14 of 2003, 19 of 2003, 8 of
2013 and 1 of 2014.30
Depending on context, multiple legislative amendments may reflect political
change, or the need to respond to issues arising from the judicial interpretation or
practical application of legislation. Feedback loops from law implementation back
to law making are important in all reform processes. They are particularly important
in low and middle-income countries, where capacity to design complex reform
programmes, and legislation to effect those programmes, may be more limited.
However, multiple legislative adjustments over time could also expose states to
investor-state arbitration claims based on the fair and equitable treatment standard.
3.4 To sum up
Investment treaties recognise the right of states to carry out land reform. They
establish standards of treatment applicable to foreign investment in a land reform
context. They reinforce VGGT provisions calling for respect for the rule of law, and
for payment of compensation in case of land expropriation. But investment treaties
can also have important distributive consequences, because they protect the
landholdings of foreign investors potentially against the legitimate land claims of
people who stand to benefit from land redistribution, restitution or tenure reform.
They establish compensation requirements that can go beyond the standards
applicable under national law, and even international human rights law.
27. Acordo Brasil-Moçambique de Cooperação e Facilitação de Investimentos (30 March 2015) and Acordo
Brasil-Angola de Cooperação e Facilitação de Investimentos (1 April 2015). For a concise analysis, see Trevino
(2015).
28. E.g. CMS Gas Transmission Company v. The Argentine Republic, para. 274; LG&E Energy Corp., LG&E
Capital Corp. and LG&E International Inc. v. Argentine Republic, para. 124.
29. Parkerings-Compagniet AS v. Republic of Lithuania, paras. 327-338; AES Summit Generation Limited and
AES-Tisza Erömü Kft v. The Republic of Hungary, paras. 9.3.29-34; Mamidoil Jetoil Greek Petroleum Products
Societe S.A. v. Republic of Albania, paras. 625-629.
30. These are the amendments publicly available at http://faolex.fao.org/faolex/.
23
24
At scale, applying these more stringent requirements without considering historical
injustices that may have occurred, and without the flexibility allowed by international
human rights law,31 can make it more costly for states to redistribute or restitute
land, or to reform land tenure regimes, including as part of efforts to implement the
VGGT. These financial implications could make it more difficult for public authorities
to act, particularly in low and middle-income countries where public finances face
harder constraints. The extent to which these considerations actually discourage
authorities from taking action, or are used by authorities to legitimise political
choices not to take action, is an empirical question requiring further socio-legal
research.
31. E.g. compensation related to market value, but not necessarily equivalent to it; nature of the public purpose
potentially affecting compensation; and potentially lower compensation in case of large-scale reform.
4. “Land grabbing”
4.1 Framing the issue
Agribusiness investments, mining and petroleum projects, special economic zones,
tourism developments and infrastructure projects can all increase pressures on the
world’s most valuable lands. Compressions of local land rights are often a primary
source of disputes in these investment processes, and public action to deal with
these disputes can give rise to investor-state arbitrations based on investment
treaties.
Land issues have emerged indirectly in some arbitrations – for example, in one
case where a mining company challenged environmental requirements aimed
at protecting lands hosting the sacred sites of a native tribe.32 In that arbitration,
the tribe made a submission to the arbitral tribunal, arguing that, while they did not
legally own the land, the area formed part of their ancestral “land base”; and calling
on the tribunal to uphold international norms protecting indigenous peoples’ rights
to land and resources.33
Commercial pressures on land are growing in many locations, increasing the
likelihood that investment treaties might be activated more directly in relation
to land rights. Debates about “land grabbing” epitomise this trend. Recent years
witnessed a new wave of large-scale land deals for plantation agriculture in low and
middle-income countries, including in sub-Saharan Africa, Southeast Asia and Latin
America (see Box 4.1). The pace of transnational deal making slowed after 2011. In
the longer term, however, demographic growth, climate change, urbanisation and
changing consumption patterns are widely expected to continue fuelling demand
for agricultural commodities and compounding pressures on valuable lands.
“Land grabbing” is a contested term that does not reflect the great diversity of
contexts and practices. But it is likely to resonate with many readers, partly due to
sustained media reporting. It is used here as shorthand for the recent wave of largescale land deals for plantation agriculture in low and middle-income countries. The
VGGT call for respect for all “legitimate tenure rights” in investment processes, as
well as for transparency, social and environmental impact assessments, benefit
sharing, community consultation and – where indigenous peoples are involved –
free, prior and informed consent (VGGT section 12).
32. Glamis Gold Ltd. v. United States of America, Award.
33. Glamis Gold Ltd. v. United States of America, Application for Leave to File a Non-Party Submission and
Submission of the Quechan Indian Nation.
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26
Box 4.1. The global land rush
In the mid-2000s, changing agricultural commodity prices, expectations of rising land
values and public policies to promote long-term food and energy security fuelled a
surge in large-scale land deals for plantation agriculture in low and middle-income
countries. Figures of scale and trend are contested. But all evidence indicates that
there has been an increased volume of “land grabbing” deals in the period starting
from 2005, and with renewed momentum following the food price hike of 2007-2008,
including in sub-Saharan Africa, Southeast Asia and Latin America. Figures also
suggest that transnational deal making slowed after 2011 (on trends in deal making,
see e.g. Deininger and Byerlee, 2011; Locke and Henley, 2013; Land Matrix, 2014;
Borras et al., 2014; Schoneveld, 2014; and Cotula and Oya, 2014).
In many cases, the deals involve long-term concessions or leases on state-owned land,
particularly in Africa and in the Mekong region where governments own or otherwise
control much land. However, where much land is owned by clans and families, as in
Ghana, customary chiefs have been leading the deal making (Schoneveld et al., 2011),
and private land purchases and complex financial transactions appear to be more
common in Latin America (Gómez, 2014). Even where they are not a party to the deals,
governments can play an important role, through providing incentives, establishing
investment promotion schemes and enacting law reforms that facilitate land access for
commercial operators.
Rigorous assessments of the long-term socio-economic outcomes of this surge
in agribusiness investments remain limited. However, available evidence points to
disappointing outcomes, at least in the short term. The failure rate of these agribusiness
ventures appears to have been high, though impossible to quantify with precision,
and slow implementation has marred ongoing investments. Available data suggests
that only 4.1 million hectares, out of a total of 37.3 million hectares transacted since
2000, are under cultivation (Land Matrix, 2014), indicating that overall levels of
implementation remain very low.
What is clear, however, is that large-scale land deals can increase competition for
land and resources. There have been numerous reports of land dispossession, for
example in Cambodia (e.g. Global Witness, 2013; Equitable Cambodia and IDI, 2013),
Ethiopia (e.g. Oakland Institute, 2011), Ghana (e.g. Schoneveld et al., 2011), Laos
(e.g. Global Witness, 2013), Liberia (e.g. Deininger and Byerlee, 2011), Mozambique
(e.g. Nhantumbo and Salomão, 2010; FIAN, 2012), Uganda (e.g. Oxfam, 2011) and
Tanzania (e.g. Sulle and Nelson, 2009). There has also been significant contestation at
local, national and international levels, with local-to-global alliances of affected people,
social movements and NGOs opposing the deals or seeking to change their terms
(Polack et al., 2013; Hall et al., 2015).
There are no publicly known treaty-based investor-state arbitrations concerning
the recent surge in agribusiness deals. However, that surge has increased the
exposure of states to potential arbitration claims for land-related investment
disputes. This is due to several factors:
●● The
very large number of deals signed in a relatively short time – some 1,000
contracts worldwide since the year 2000, according to one global database
(www.landmatrix.org);
●● The poor quality of at least some of the investor-state contracts underpinning the
deals (see e.g. Cotula, 2011b), leaving much room for diverging interpretations
and renegotiation;
●● Evidence
suggesting that an unquantified but potentially significant share of
large-scale land deals is protected by investment treaties (see Box 4.2);
●● Vocal
calls to terminate or renegotiate the deals, or to improve their social,
environmental and economic parameters, which could have adverse impacts on
commercial operations; and
●● The
fact that many deals concern countries where land governance is weak,
so public authorities may lack the capacity to act in ways that comply with
investment treaties.
As standards are improved and bad contracts terminated, there are questions as
to who should bear the costs. This chapter explores how investment treaties can
come into play. The argument is not that investment treaties are the main source
of the problems associated with large-scale land deals. Rather, the chapter argues
that, if not properly thought through, the protections provided by investment treaties
could compound shortcomings in national land governance. Unlike the discussion
of land reform in the previous chapter, which relied on several arbitral awards, the
lack of publicly known investor-state arbitrations linked to “land grabbing” means
that the analysis is at this stage more hypothetical. However, the chapter discusses
the reasoning developed by arbitral tribunals in cases not concerning large-scale
land deals, which would be relevant to possible future arbitrations relating to
agribusiness investments.
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28
Box 4.2. “Land grab” deals in the shadow of investment treaties
It is difficult to measure with precision the extent to which large-scale land deals for
plantation agriculture in low and middle-income countries are covered by investment
treaties. Determining whether an investment project is protected by a publicly known
investment treaty (such as those available on the UNCTAD database of treaties: http://
investmentpolicyhub.unctad.org/IIA) requires information about corporate structures
that is often not in the public domain.
This is because a company based in one country and investing in another country can
benefit from the protection accorded by an investment treaty concluded between the
host country and a third country, by channelling the investment through a subsidiary
incorporated in the third country. The company could pursue these “corporate
planning” strategies if the host country has no treaty with its home country, or if the
investment treaty between host and home countries provides less robust standards of
protection.
Anecdotal evidence suggests that a number of land deals are indeed protected by
investment treaties. For example, of a total of 28 foreign investments in agriculture (38
deals, minus duplications and deals led by local nationals) examined in Cotula (2011),
Polack et al. (2013) and Cotula and Blackmore (2014), 13 would at first sight seem to
be covered by BITs available on the UNCTAD database, merely based on the investor’s
home country (and in one case, based on immediately available information about the
corporate structure).
Given the widespread use of corporate planning strategies, more of these 28 deals
are likely to be covered by investment treaties, depending on corporate structures
for which information is not publicly available. It is worth noting that Mauritius has
concluded BITs with 20 other sub-Saharan countries. Evidence suggests that some
land deals have been channelled via Mauritius, most likely for tax minimisation and
investment protection purposes (see Cotula, 2012).
4.2 Typology of possible cases
a) Community contestation and public action
“Land grabbing” has involved significant levels of contestation about the
circumstances of land acquisition. This has been the case not only where
allegations of corruption or other illegality accompanied deal making, but even for
land deals that broadly complied with national law. Contestation of lawful deals
may be linked to weaknesses in land governance. Depending on country contexts,
national law may vest with the government ownership or control of land over which
rural people may claim customary land rights. In these cases, the government has
the legal authority to allocate the land to investors. Protection of customary land
rights may be absent or weak, or based on legal concepts of colonial origin that
contrast with local practice. Legislation may also condition legal protection to
requirements that exclude the rights claimed by rural people.
For example, productive land use requirements tend to exclude from legal
protection the lands that villagers use for shifting cultivation, grazing or foraging,
or that they have set aside for future generations. Depending on context, these
lands may account for the bulk of a village’s customary landholdings (Alden Wily,
2011). National law may also provide limited opportunities for transparency and
accountability, and may require minimal local consultation before land allocations
are decided (see Vermeulen and Cotula, 2010; and Polack et al., 2013).
In some contexts, authoritarian governments have imposed the deals and repressed
dissent, including through restrictions on freedom of assembly and association
and militarisation of land concessions (see e.g. Subedi, 2012). As a result of
weaknesses in national governance, even deals that formally comply with national
law may lack legitimacy in the eyes of local communities, or may be subject to
scrutiny under international human rights law.
In these contexts, grassroots demands that the contested land be returned to
local communities could enter into tension with treaty commitments for the state
to uphold the land rights acquired by the investors, or compensate their loss at
market value. Arbitral jurisprudence developed over the years illustrates the multiple
channels that can link grassroots action to investor-state arbitration. For example:
●● Direct
action by villagers (e.g. farm incursions and occupations) has led to
successful claims for damages based on “full protection and security” clauses,
with investors arguing that the state failed to exercise due diligence in protecting
the investment (see Chapter 3).
●● Government
action taken at least in part to respond to community opposition
to investments has resulted in claims for damages based on fair and equitable
treatment or expropriation clauses.34
●● Court proceedings initiated by grassroots groups or NGOs to contest proposed
investment projects have triggered expropriation claims.35
34. E.g. Abengoa S.A. y COFIDES S.A. v. Estados Unidos Mexicanos, paras. 192-297, 610, 624, 647-648.
35. For example, the ongoing arbitration Infinito Gold Ltd. v. Republic of Costa Rica concerns the alleged
expropriation of a mining concession resulting from court action initiated by an NGO.
29
30
b) Public action to enforce or improve economic, social or
environmental parameters
Even in the absence of community contestation, a wide range of measures
initiated by public authorities could give rise to investor claims for compensation
payouts from the public purse. Examples can be drawn from four sources. First,
arbitral jurisprudence from sectors other than agriculture provides many examples
of measures that have been challenged through investor-state arbitration.
These include refusals to issue or renew environmental permits,36 and efforts to
renegotiate concession contracts,37 resist renegotiation initiated by the investor,38
or terminate contracts to sanction the investor’s unauthorised transfers of contract
rights to third parties.39 All of these measures would be relevant to agribusiness
investments.
Second, public action to implement the VGGT could adversely affect investments.
For example, action to extend legal recognition to “legitimate tenure rights not
currently protected by law” (VGGT paragraph 4.4; see also paragraph 5.3)
could increase costs for investments that involve significant land acquisition. The
introduction of ceilings on permissible land transactions (VGGT paragraph 12.6), of
more stringent standards of local consultation and participation (VGGT paragraph
12.9) or of more robust impact assessment studies covering social impacts (VGGT
paragraph 12.10) could affect or delay the implementation of investment projects.
Application of free, prior and informed consent (VGGT paragraphs 9.9 and 12.7)
could stall project implementation. Depending on the circumstances of the case,
investors could seek compensation from the government, arguing that public action
in these directions breached fair and equitable treatment clauses and (where
impacts are particularly severe) expropriation clauses.
Third, the terms of the few publicly available land contracts provide pointers on
issues that might activate the protections established by investment treaties. Some
contracts provide investors with specific, extensive and enforceable rights, while
leaving investor obligations limited or ill-defined. Some of the rights granted to
investors can have substantial implications for third parties and might prove difficult
to uphold in the longer term due to environmental constraints. For example, some
contracts grant investors priority water rights, including in contexts such as Mali
where the water resource base fluctuates considerably, even more so in the context
of climate change (see Cotula, 2011b). Should governments seek to reopen these
contracts, investors might rely on an applicable investment treaty to challenge the
renegotiation or seek damages.
36. Técnicas Medioambientales Tecmed S.A. v. United Mexican States; William Ralph Clayton, William
Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware Inc. v. Government of Canada; Pac
Rim Cayman LLC v. The Republic of El Salvador.
37. E.g. Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Republic of Argentina.
38. E.g. PSEG Global Inc. and. Konya Ilgin Elektrik Uretim ve Ticaret Limited Sirketi v. Republic of Turkey.
39. E.g. Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Republic of
Ecuador; Vannessa Ventures Ltd. v. Bolivarian Republic of Venezuela.
Finally, the slow implementation and high failure rates of the recent wave of
agribusiness investments may lead to governments terminating contracts.
Research has already documented cases where states have renegotiated or
terminated contracts (see e.g. Keeley et al., 2014). Some countries have launched
commissions of inquiry into alleged illegalities in land acquisition, resulting in
findings of irregularities and in official recommendations for the government to
terminate leases. One example is Papua New Guinea’s Commission of Inquiry
into the Special Agriculture and Business Leases, which published its final report
in 2013.40 Where contract termination affects foreign investments protected by
treaties, it could lead to investor claims for damages.
The above analysis suggests that, depending on the circumstances, states may
have to compensate investors for action taken by grassroots groups or public
authorities – or at least they may have to go through costly and difficult arbitration
proceedings to defend that action against investor claims. Investment treaties could
also be relied on in negotiations between investors and governments, potentially
affecting outcomes – an issue deserving further study through socio-legal research.
As a result of these processes, states may have to shoulder the full costs of action
to tackle “land grabbing”. Much will depend on the facts and on technical issues
that could come up should investors bring arbitrations. The remainder of this
chapter discusses these issues.
4.3 The circumstances of land acquisition
Given the significant levels of contestation about many land deals, one important
question is whether an arbitral tribunal can scrutinise the circumstances under
which the investor acquired the land. Relevant circumstances may include
allegations that the investor acquired the land illegally, or at unduly favourable
terms. Depending on arbitral approaches, consideration of these circumstances
could help the state to have the dispute thrown out due to lack of jurisdiction;
influence the tribunal’s decision on the merits of the case; or reduce the amount of
compensation due to the investor.
The literature on “land grabbing” has documented widespread allocation of land
below market values. A World Bank study found land rental fees to be significantly
below the “land expectation values” that the Bank calculated through valuation
methods based on the land’s ability to generate returns. In one Mozambican
case, the annual land fee was $0.60 per hectare, compared to an estimated land
expectation value of $9,800 per hectare (Deininger and Byerlee, 2011). Some
contracts for land deals exempt the company from paying land fees for a few years,
or even for the entire duration of the project (see Cotula, 2011b). These low land
valuations may be linked to capacity constraints in government administration, or to
deliberate policy choices aimed at attracting agribusiness investment.
40. Official documentation available at www.coi.gov.pg/sabl.html.
31
32
The issue of land allocations below market value can raise particularly pressing
issues in the context of political transitions from authoritarian regimes: an
authoritarian government may have used land allocation at favourable terms as a
means to create political support for the regime, and a newly elected democratic
government may seek to renegotiate those land transactions (Bonnitcha, 2011b).
Land valuation issues have come up in some recent arbitrations, albeit not
concerning “land grabbing”. For example, controversy over allegedly investorfriendly valuation of land ceded by the investor to the government, and by the
government to the investor, in a “land swap agreement” for the development of
a tourism resort in Hungary was one key issue at stake in the recent arbitration
Vigotop Limited v. Hungary.41 Another arbitration, reportedly settled (Zayid, 2013),
concerned controversy over the purchase price of land acquired by a foreign
investor in Egypt. The investor acquired the land at the time of the Mubarak regime,
and Egyptian courts rescinded the transaction after the fall of that regime.42
One problem is that investment treaties tend not to allow tribunals “to adjust
compensation in light of fairness considerations relating to the manner in which an
investment was acquired” (Bonnitcha, 2014b, p. 1007). As discussed, investment
treaties tend to require payment of compensation at market value. A mechanical
application of these provisions may require the government to compensate the
investor at market value, even though the investor may have acquired the land well
below market prices (Bonnitcha, 2014b).
Besides low land valuation, other issues affecting land acquisition might include
inadequate community consultation or impact assessments, or circumvention
of rules restricting foreign land ownership. Arbitral jurisprudence suggests that
land rights acquired through corruption would in principle be excluded from
the protection of investment treaties.43 Also, some investment treaties require
compliance with applicable law in the making of an investment as a condition for
legal protection, and some arbitral tribunals have considered investors’ violations
of applicable law even in the absence of such legality clauses (for a discussion of
this jurisprudence, see Moloo and Khachaturian, 2011). So if the investors acquired
the land illegally (e.g. in breach of community consultation requirements), they could
be excluded from protection. Breach of legality requirements in investment treaties
could also allow states to make counterclaims – that is, to respond to an investor’s
arbitration claim not only through a defence, but also through seeking damages for
harm caused by the investor’s illegal behaviour.
41. Vigotop Limited v. Hungary, paras. 93-105, 112-122, 154-163, 194-198, 418-421, 525-543.
42. Hussain Sajwani, Damac Park Avenue for Real Estate Development S.A.E., and Damac Gamsha Bay for
Development S.A.E. v. Arab Republic of Egypt. Information on this arbitration is based on Hepburn and Peterson
(2012b) and Bonnitcha (2014b).
43. World Duty Free Company Ltd v. Republic of Kenya, para. 157. This arbitration was based on a contract
rather than a treaty.
However, corruption tends to be difficult to prove. And even a broad definition of
corruption may not capture the full range of relations that can underlie favourable
land allocations. Many legality requirements in investment treaties only concern
the making of an investment, so illegal conduct occurring during the operation of
the venture may not exclude the investment from treaty protection. Allegations of
illegality may involve “shades of grey” that are difficult to handle, for example where
systemic gaps in laws or regulations undermine the proper operation of national
law; where investments formally comply with legislation but civil society raises
concerns about alleged violations of the “spirit of the law” (Oxfam, 2013); or where
issues are raised about the quality of measures taken by the investor to comply with
national law (e.g. impact assessments, community consultation).
In addition, the fact that land acquiring companies complied with national law
has not sheltered them from contestation. As discussed, national law may fail
adequately to protect the land rights of affected people, or to provide effective
opportunities for transparency, local consultation and accountability (as assessed
against the benchmark of the VGGT, for example). In these situations, even treaties
that require compliance with national law could extend protection to landholdings
that communities perceive investors to have acquired through an injustice.
Investment treaties could protect landholdings acquired through lawful but
questionable means against the land claims of dispossessed communities.
4.4 “Land grabbing” and “legitimate expectations”
The previous section discussed the concern that investment treaties could
compound problems ultimately rooted in weaknesses of national governance,
particularly where treaties protect landholdings acquired through questionable
means. The doctrine of “legitimate expectations” further illustrates this point.
Arbitral tribunals developed this doctrine on the basis of fair and equitable treatment
clauses included in investment treaties. Widely considered to be a key element
of fair and equitable treatment, the “legitimate expectations” doctrine refers to a
situation where the conduct of the host state creates reasonable expectations on
the part of an investor, yet the state subsequently fails to honour those expectations
causing the investor to suffer losses.44
Arbitral tribunals have taken different approaches in determining the type of state
conduct that can give rise to legitimate expectations on the part of the investor. For
example, some tribunals emphasised the need for specific, tailored representations
made by government officials to the investor,45 while others found that generally
applicable law can in itself generate expectations, particularly to legal stability.46
However, there is widespread support in the arbitral jurisprudence for the
44. International Thunderbird Gaming Corporation v. The United Mexican States, para. 147.
45. E.g. International Thunderbird Gaming Corporation v. The United Mexican States, paras. 147-167.
46. E.g. Frontier Petroleum Services Ltd. v. The Czech Republic, para. 285.
33
34
proposition that government representations can, under certain circumstances,
create legitimate expectations.
Therefore, representations made by public officials as part of efforts to attract
agribusiness investments or during contract negotiation or land allocation
procedures could be deemed to create legitimate expectations. These
representations could include assurances to the investor that the land is available
and “free of any encumbrances”, and promises that the necessary permits will be
issued. In the line of jurisprudence that considers generally applicable legislation as
a possible basis of legitimate expectations, investor reliance on national law could
also be deemed to create legitimate expectations. In other words, the investor could
argue that, having followed prescribed procedures and having lawfully obtained a
land lease from the government, it has a legitimate expectation that the project will
go ahead unimpeded.47
Yet government officials may have made the representations to the investor before
any local consultation took place on the proposed agribusiness investment. And
as discussed, investor compliance with national law may not be enough to ensure
that a land deal does not trump local aspirations and face contestation. Given
the extensive and sustained reporting of contestation against “land grabbing”,
there are arguably real questions as to whether an investor could reasonably
claim to have legitimate expectations that the project will go ahead unimpeded
based on government representations made without meaningful, prior community
engagement; or based on compliance with national law that does not adequately
recognise “legitimate tenure rights” (as called for by the VGGT).
At present, however, it is not clear how arbitral tribunals would deal with these
issues, and what value they would attach to promises or assurances that
government officials may have made before community engagement took place.
Some developments in arbitral jurisprudence, not related to “land grabbing”,
suggest that arbitral tribunals might develop ways to consider circumstances that
the investor was or should have been aware of. One example is the arbitration
Hassan Awdi, Enterprise Business Consultants, Inc. and Alfa EL Corporation
v. Romania, which partly concerns the restitution of a historic building to the
descendants of the owners dispossessed by Romania’s communist regime. In this
case, the tribunal dismissed most of the investor’s claims relating to the contested
property, on the ground the investors were aware of the risk of restitution when they
acquired the property (see Box 4.3).
47. On this point, see Abengoa S.A. y COFIDES S.A. v. Estados Unidos Mexicanos, para. 646.
Box 4.3. Beware of contested property: Awdi v. Romania
In Hassan Awdi, Enterprise Business Consultants, Inc. and Alfa EL Corporation
v. Romania, the claimants brought an arbitration partly concerning title to a historic
building in Romania. The communist regime confiscated this property in the 1950s.
In the 1990s, the Romanian authorities privatised the property and the claimants
purchased it. However, authorities also established a programme to return confiscated
properties to their original owners or their descendants. The restitution programme
partly responded to judgments issued by international human rights courts: in the
unrelated case Brumărescu v. Romania, the European Court of Human Rights found
that Romania’s failure to deal with the restitution of property violated the rights to
property and to a fair hearing recognised by the European Convention on Human
Rights.
As part of this restitution programme, Romanian courts ordered the restitution of the
contested historic building to the descendants of the original owners. Having lost the
property, the claimants brought the arbitration against the Romanian government. The
claimants sought compensation, arguing that authorities violated the fair and equitable
treatment and expropriation clauses of an applicable BIT.
The arbitral tribunal discussed at length the complex legal framework and political
sensitivities associated with Romania’s restitution programme. It noted that, when the
claimants purchased the property, the descendants of the original owners were already
pursuing restitution claims through the national courts. So the claimants knew that title
of the property was contested and were aware of the risk of restitution. This risk was
reflected in the contractual documentation for the transaction, and in the relatively low
price paid for the purchase of the property.
Accordingly, the arbitral tribunal found that no expropriation had occurred. However,
the tribunal held that the investor had a legitimate expectation to have the purchase
price returned if the restitution risk materialised, and ordered reimbursement of that
price.
While the Awdi arbitration concerns real estate, the tribunal’s reasoning could
be relevant to possible future cases concerning rural land (Peterson, 2015). One
reading of this award suggests that awareness of tenure contestation could affect
the extent to which investors could claim to have legitimate expectations about
the land rights they acquire. However, in that case public authorities had made the
tenure uncertainty clear to the investor. On the other hand, many “land grab” deals
involve government representations to reassure investors about their security of
tenure. Also, the tribunal’s analysis hinged on the investor’s awareness of the prior
existence of legal proceedings for the restitution of property. As such, it provides
little insight on how a tribunal might deal with situations where no such proceedings
existed and local landholders are in practice excluded from the law and from legal
remedies.
35
36
Finally, the Awdi arbitral tribunal ordered the Romanian government to return to
the investor the purchase price paid for the property. The tribunal devoted little
space to motivate this decision – it merely stated that the investor had a “legitimate
expectation” to have the purchase price returned should the risk of restitution
materialise. This decision raises questions, particularly given that the tribunal found
that the risk of restitution had been factored into the “relatively low price” paid for
the property.48
4.5 To sum up
The recent wave of “land grabbing” deals is yet to result in publicly known investorstate arbitrations based on investment treaties. But the signing of hundreds of land
deals worldwide in a relatively short period of time, the poor quality of at least some
of these deals and vocal calls for contract termination, renegotiation and better
regulation have increased the exposure of states to potential land-related claims
based on investment treaties. Requirements for states to pay damages to investors
could mean that the public purse may have to shoulder the full cost of action that
public authorities or grassroots groups take to tackle “land grabbing”, including as
part of efforts to implement the VGGT.
Should investors bring arbitrations, they will not necessarily win. As discussed in
Chapter 3, some tribunals have stressed that investors should expect regulation
to change over time, though some have emphasised regulatory stability. But the
protections enshrined in investment treaties risk compounding problems rooted
in shortcomings of national governance. For example: investments made illegally
may be excluded from protection but investment treaties could protect one-sided
land deals that, while complying with national law, dispossess rural people; a
mechanical application of investment treaties might lead arbitral tribunals to award
compensation calculated on the basis of market value, even if investors acquired
land considerably below market prices (Bonnitcha, 2014b); and the doctrine of
legitimate expectations could expose governments to liabilities for representations
that officials may have made to the investor before any community consultation took
place.
can consider the complexities of land relations in investment disputes – for example,
by excluding from protection investments made through corruption or other
illegality, or by considering whether investors were aware of the tenure risks when
they made the investment. But important questions remain, and much depends on
how these lines of jurisprudence will evolve in the coming years.
48. Paras. 435 and 440. The economics of risk can be complex, but a simplified hypothetical example can
help to illustrate this issue. If a property is worth €100 and there is a 50% risk of restitution, and if as a result the
buyer pays €50 for the purchase, the risk factor is already integrated in the reduced purchase price. So if the
risk then materialises, requiring the seller to return the price to the buyer would effectively make the purchase a
“guaranteed bet” and could arguably encourage land acquisition in situations of tenure contestation.
5. Other land governance issues
5.1 Introduction
The previous two chapters explored how investment treaties can affect two
particularly important areas of land governance – land reform and public action
to address “land grabbing”. Given the topics covered, both chapters focused on
agriculture. But investment treaties can also have much wider ramifications for land
governance, potentially affecting a broad range of measures. These ramifications
are not limited to agriculture: land is an important asset for investments in sectors
as diverse as tourism, manufacturing, extractive industries and real estate. For
example, land rights that investors acquired for tourism development projects
have formed the object of several arbitrations, e.g. against Costa Rica, Egypt and
Hungary.49
In discussing the wider ramifications of investment treaties for land governance, this
chapter focuses on two issues: the conditions under which foreign investors can
acquire land rights; and issues of quality and capacity in judicial and administrative
systems for land governance.
5.2 Do investment treaties facilitate land access for foreign
investors?
In many societies, land is a highly emotive issue. Land acquisition by foreign
nationals can cause resentment and tensions. In the European Union (EU), the
lifting of restrictions on foreign land ownership was a particularly sensitive issue
when Central and Eastern European countries negotiated their accession to
the EU, and all these countries negotiated transition phases before lifting the
restrictions (McAuslan, 2010). Sensitivities can be particularly acute where
historical legacies are at play, particularly a history of colonisation or foreign
domination, for example in Africa.
In countries where significant land areas are held by indigenous peoples or under
customary tenure, where landholdings have important social, cultural and spiritual
connotations, and where limited capital stocks constrain domestic investments
in commercial ventures, foreign investment involving large-scale land acquisition
could foster transitions toward more commercialised forms of landholdings. Public
concerns have also been raised that the unbridled operation of market forces can
push poorer people off their land, increasing land concentration. These transitions
49. E.g. Waguih Elie George Slag and Clorinda Vecchi v. Arab Republic of Egypt; Vigotop Limited v. Hungary;
Marion Unglaube and Reinhard Unglaube v. Republic of Costa Rica; and Hussain Sajwani, Damac Park
Avenue for Real Estate Development S.A.E., and Damac Gamsha Bay for Development S.A.E. v. Arab Republic
of Egypt.
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38
can have profound consequences not only for rural livelihoods, but also for the very
fabric of society.
In response to varying combinations of these considerations, national law in many
jurisdictions differentiates between nationals and non-nationals in the acquisition of
land rights. For example, some national laws:
●● Bar non-nationals from acquiring land ownership;50
●● Require
government authorisations for the acquisition of land rights by nonnationals;51
●● Provide maximum or shorter lease durations for non-nationals;52
●● Provide
maximum land area ceilings for non-nationals, in aggregate terms as
a percentage of national and/or subnational rural land and/or in relation to
individual landholdings;53 or
●● Restrict
use.54
the allocation of land rights to non-nationals to specified forms of land
These restrictions are not necessarily very constraining in practice. It has been
noted, for example, that “[t]wenty-five-year tourist leases for foreign investors in
Maldives have not stopped an enormous level of investment from Europe and Asia
in tourist resorts there since the mid- to late 1970s. […] Thirty-year leases did not
inhibit Korean and Taiwanese investment in building factories in Lesotho to take
advantage of the U.S. African Growth and Opportunity Act […]” (McAuslan, 2010,
p. 197). Depending on the type of investment, foreign investors may not want to
burden themselves with the costs, risks and obligations that may be associated with
land ownership (McAuslan, 2010). The issue here is whether investment treaties
can require states to lift restrictions on the acquisition of land rights by foreign
investors.
Most investment treaties concern themselves with how foreign investment is
treated only after it has entered the host state’s territory. States can regulate the
admission of foreign investment, including in relation to the acquisition of land rights
for project implementation. But investment treaties following a “pre-establishment”
model create obligations to admit foreign investment under certain conditions.
Subject to exceptions and reservations, these treaties tend to apply national
treatment and most-favoured-nation principles not just to the treatment of foreign
investment, but also to its admission. In other words, they require states not to
discriminate against foreign investors and investments in the issuance of permits,
50. E.g. Article 8 of Cambodia’s Land Law of 2001; Article 266(1)-(2) of Ghana’s Constitution of 1992; Article
237 of Uganda’ Constitution of 1995, amended in 2005, and Article 41 of Uganda’s Land Act of 1998.
51. E.g. Article 84(1)-(2) of Canada’s Saskatchewan Farm Security Act of 1988, as amended; and Article 58 of
Namibia’s Agricultural (Commercial) Land Reform Act of 1995, as amended.
52. E.g. Article 266(4) of Ghana’s Constitution of 1992.
53. E.g. Articles 8-10 of Argentina’s Law No. 26737 of 2011.
54. E.g. Article 20(1) of Tanzania’s Land Act of 1999; Article 10(2) of Uganda’s Investment Code Act of 2000.
licences, authorisations or other formalities that may be required for the making of
an investment.
This pre-establishment approach effectively constitutes a form of liberalisation of
investment flows. While still featuring in a minority of investment treaties worldwide,
pre-establishment provisions are increasingly common, particularly in integrated
trade and investment treaties. Some treaties feature pre-establishment provisions
but exclude these provisions from investor-state arbitration.55
Based on a pre-establishment national treatment clause, covered foreign investors
would in principle be entitled to acquire the same types of land rights, and under
the same conditions, as are applicable to local nationals. Measures that differentiate
between nationals and non-nationals in the acquisition of land rights would violate
the investment treaty. However, investment treaties often qualify pre-establishment
national treatment provisions. For example, several treaties exclude existing nonconforming measures. Many treaties also explicitly exclude land tenure, thereby
avoiding the application of pre-establishment commitments to both existing and
future measures concerning land rights.56 But other treaties do not exclude land
tenure, so pre-establishment obligations would in principle cover land rights.57
Where pre-establishment national treatment clauses do apply to land rights,
national legislation that treats foreign investors less favourably than local nationals
would be inconsistent with international law. These pre-establishment clauses
can facilitate the acquisition of land rights by foreign investors, including in the
context of “land grabbing”, because states would have a legal obligation to revise
their legislation and ensure that foreign investors are treated as favourably as local
nationals.
In practice, the application of the typical investment law remedy for treaty violations
(i.e. payment of compensation) to these pre-establishment situations (i.e. before an
investment has even been made) raises practical difficulties – not least because it is
unclear how an arbitral tribunal would determine compensation. And as discussed,
some investment treaties do not allow investors to bring arbitrations for alleged
breaches of pre-establishment provisions. More research is needed on the actual
extent to which pre-establishment investment treaties are driving change in land
relations on the ground.
It is worth emphasising that the issue discussed here is not whether a state should
differentiate between nationals and non-nationals in the acquisition of land rights.
States may legitimately have different policies on this sensitive point. Rather, the
issue is whether a state that wishes to liberalise land access should do this through
55. E.g. ASEAN (Association of Southeast Asian Nations) Comprehensive Investment Agreement of 2009,
Article 32(a).
56. E.g. Canada-Mali BIT 2014, Annex I. For Mali, reservations from liberalisation commitments include the land
code and the Agricultural Orientation Law. See also Annex II of the Benin-Canada BIT 2013 and Annex II(2) of
the Japan-Laos BIT 2008.
57. E.g. Cameroon’s schedule of reservations to the Cameroon-Canada BIT 2014 does not appear to include
reference to Cameroon’s land legislation.
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an investment treaty. States can and often do eliminate differences of treatment
between nationals and non-nationals by reforming national law. Should there be a
policy change in future, a state can more easily change its own national law than
renegotiate or terminate an investment treaty — not least due to the restrictions on
termination contained in many investment treaties. In other words, enshrining preestablishment commitments in an investment treaty tends to make a country’s
policy more rigid.
5.3 Quality and capacity in land administration
The quality of land administration may come under the scrutiny of investor-state
arbitral tribunals. In interpreting the provisions of investment treaties, arbitral
tribunals have clarified the standards of conduct that should be expected of
public authorities. For example, arbitral tribunals have held that the fair and
equitable treatment standard requires states “to act in a consistent manner, free
from ambiguity and totally transparently in its relations with the foreign investor”.58
Investor-state arbitral tribunals would assess the conduct of national land
administration authorities in light of these standards. Conduct falling short of the
standards could be found to violate an applicable investment treaty, and to require
the government to compensate investors.
For example, in a case affecting land zoning regulations, the arbitral tribunal found
that inconsistent government conduct partly caused by a coordination failure
among multiple ministries involved in investment approval constituted a violation
of investment protection standards (see Box 5.1). In another case linked to mining
operations, the tribunal found that a five-year delay in proceedings before the Indian
Supreme Court – a body catering for over one billion people in a country still hosting
widespread poverty – breached investment treaty commitments.59
While not concerning land rights directly,60 these cases illustrate the standards
against which arbitral tribunals are likely to assess judicial and administrative
systems for national land governance. The capacity challenges faced by land
governance systems in many low-income countries have been well documented,
as have the major backlogs of land disputes pending before national courts (e.g.
Crook, 2004; Massay, 2013). Also, effective public action to administer land
requires significant technical and institutional capacity, particularly where complex
foreign investment projects are at stake. Ensuring consistency of state action on
investments involving approvals from, or relations with, multiple government
agencies at national and local levels also requires significant capacity.
58. Técnicas Medioambientales Tecmed S.A. v. United Mexican States, para. 154.
59. White Industries Australia Limited v. The Republic of India.
60. However, MTD Equity Sdn. Bhd. v. Republic of Chile concerns conversion of agricultural land to urban
developments. In many low and middle-income countries, urban expansion is an important driver of pressures on
agricultural land.
Box 5.1. Lack of coordination among government authorities can breach
investment treaties
MTD Equity Sdn. Bhd. v. Republic of Chile involved a dispute between Chilean
authorities and a Malaysian company that had acquired land to develop real estate in
the surroundings of Santiago, the capital city. Chile’s Foreign Investment Commission
approved admission of the proposed investment. At that stage, the ministry responsible
for housing and urban development was not consulted.
When subsequently approached by the investor, this ministry refused to rezone the
land from sylvo-agro-pastoral to residential use, because doing so would have been
inconsistent with applicable urban development plans. This refusal caused the project
to stall.
The arbitral tribunal found that the failure of Chilean authorities to act consistently
breached the standard of fair and equitable treatment under the applicable investment
treaty. However, the tribunal also reduced the damages awarded to the investor due to
shortcomings in the investor’s due diligence process.
In many low and middle-income countries, public authorities may not be equipped
to take action in ways that would not expose them to arbitration claims. And while
it could be argued that investment treaties can increase pressures for states to
strengthen administrative and judicial procedures,61 where resources are scarce
there is a risk that governments might prioritise upgrading institutional infrastructure
for foreign investment, for example through separate fast-tracked procedures,
over citizens’ needs. Some recent investment treaties require tribunals to consider
a country’s level of development when applying fair and equitable treatment.62
Provisions of this type remain very rare, however, and it is as yet unclear how arbitral
tribunals will apply them.
Another important governance issue is that arbitral tribunals have tended to
frown upon politicisation of the handling of foreign investments – for example, in
cases where governments appeared to take social or environmental measures for
political ends.63 Arbitral tribunals have particularly taken issue with “inflammatory”
statements, political rallies and action taken against the backdrop of electoral
campaigns. However, some tribunals have recognised that “it is normal and
common that a public policy matter becomes a political issue”, and have held that
politicisation does not necessarily result in arbitrary or discriminatory conduct.64
61. Though it has also been argued that, by delocalising disputes, investment treaties can in fact reduce
pressures to upgrade national systems.
62. E.g. COMESA (Common Market for Eastern and Southern Africa) Investment Agreement of 2007, Article
14(3).
63. E.g. Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Republic of Argentina (‘Vivendi
II’), paras. 7.4.18-7.4.46 and 7.5.8; Biwater Gauff (Tanzania) Limited v. United Republic of Tanzania, paras.
497-500 and 519; Abengoa S.A. y COFIDES S.A. v. Estados Unidos Mexicanos, paras. 192-297, 610, 624,
647-648.
64. AES Summit Generation Limited and AES-Tisza Erömü Kft v. The Republic of Hungary, paras. 10.3.22-24
and 34.
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Land rights can raise highly emotive and inherently political issues, particularly in
many low and middle-income countries where land provides an important basis
for livelihoods, social and cultural value, political power and the collective sense of
justice. In these contexts, disputes involving agrarian reform or large concessions
on contested lands are likely to involve a degree of politicisation. Mobilisation of
political figures, in government or opposition, is a common strategy pursued by
grassroots groups affected by “land grabbing” (see e.g. Polack et al., 2013). In this
context, the political nature of land could increase the exposure of states to investorstate arbitration and to adverse arbitration outcomes.
5.4 To sum up
Beyond land reform and “land grabbing”, investment treaties can affect several
important land governance issues. For example, pre-establishment investment
treaties could require states to revise legislation that differentiates between
nationals and non-nationals in the acquisition of land rights. The influx of commercial
land-based investments could foster commercialisation of land relations in contexts
where land may have important social, cultural and spiritual value. In addition,
investment treaties could expose governments to liabilities for shortcomings in
land governance that are rooted in the limited capacity of judicial or administrative
authorities. This could include delays in the settlement of disputes and coordination
failures among multiple government agencies.
6. Conclusion and ways forward
6.1 Land rights and investment treaties: a far-reaching interface
In a globalised world, land governance is shaped by international as well as
national regulation. As pressures on land intensify and land relations become more
transnationalised, increasing recourse to investment treaties and arbitration in landrelated disputes is redesigning spaces for land claims at local and national levels.
Investment treaties can have far-reaching implications for land reform, for public
action to address “land grabbing” and for the wider land governance frameworks.
While in some areas those implications are still hypothetical, investor-state arbitral
tribunals have already reviewed the legality of state conduct in relation to land
redistribution, the restitution of property, land valuation, farm occupations, the
termination of land transactions and land zoning regulations.
Effective safeguards against arbitrary state conduct are an important part of
promoting the rule of law. But distributive issues are also at stake, because
investment treaties can protect the landholdings of foreign investors against the
legitimate land claims of indigenous peoples, small-scale rural producers, the
landless and more generally poor and marginalised groups.
By increasing the cost of land redistribution, restitution or tenure reform, or of public
action to address “land grabbing”, investment treaties could enter into tension
with progressive land policies – including action to implement the VGGT. “Preestablishment” investment treaties could require states to remove restrictions on
the acquisition of land rights that differentiate between local nationals and foreign
investors. Depending on context, this could foster commercialisation of land
relations in places where land may have important social, cultural and spiritual value.
Investment treaties could also expose governments to liabilities for conduct caused
by limited capacity in administrative or judicial authorities.
can consider some of the complexities of land relations in investment disputes –
for example, by excluding from protection investments made through corruption
or other illegality, or considering whether investors were aware of the tenure
risks when they made the investment. But important questions remain, and much
depends on how these lines of jurisprudence will evolve in the coming years.
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44
Empirical evidence on the actual extent to which investment treaties are affecting
land rights on the ground remains limited, not least because information is not in the
public domain and methodological challenges are at play. There is a need for sociolegal research on the operation of investment treaties, including in situations that do
not result in publicly known arbitrations and as such remain below the public radar.
However, the analysis of legal frameworks and the growing body of investorstate arbitrations do highlight the multiple channels that can connect international
investment treaties to local land rights. They show that states may have to bear
the full cost of socially desirable land governance action, compensating foreign
investors for actual and projected losses.
They also highlight the stark contrast between the legal protections accorded to
foreign investment, and the legal insecurity to which many rural people are exposed
worldwide. As pressures on the world’s natural resources bring competing land
claims into contest, imbalances in the law regulating foreign investment raise
probing questions about whose rights are being protected and how.
From a policy perspective, there is a case for international arrangements that
protect landholders from arbitrary state conduct. But there are real questions as
to why foreign investors should enjoy more stringent protection standards than
those applicable to all under international human rights law; and why potentially
identical lands should attract different compensation amounts purely based on the
nationality of the landholder.
The stated objective of investment treaties is to promote investment flows
between the states parties, through reassuring investors that they will reap the
benefits of their investments. But evidence on whether the protections enshrined
in investment treaties do promote foreign investment is mixed, partly due to
methodological difficulties. For example, there is no conclusive evidence that
compensation standards precluding consideration of the public purpose at stake
or the circumstances of the investor’s land acquisition play a key part in promoting
investment.
It is often argued that foreign investors deserve special protection because they
do not enjoy political representation in the host state.65 However, this formalistic
view of political influence does not reflect the multiple real-world channels that both
foreign and domestic companies can use to affect policy – even though neither
foreign nor domestic companies can vote.
This argument also implies a localised, insulated view of politics, and does not
consider the effects of globalisation on politics and public action. Further, many
citizens in low and middle-income countries are not able to exercise their right to
vote due to lack of identity cards and other practical constraints, particularly in rural
65. See the European Court of Human Rights case James v. United Kingdom, para. 63, and the investor–state
arbitration Joseph Charles Lemire v. Ukraine, para. 57.
areas. It should not be assumed that their interests are better represented than
those of foreign investors.
Finally, while large foreign investments are often associated with higher economic
stakes that may be thought to require more sophisticated legal protection, the loss
suffered by people affected by those investments may be much greater in relative
terms – because the loss of a small plot of land may entail the destruction of entire
livelihoods, and may make people vulnerable to destitution and loss of social
identity.
For many rural people, enjoyment of land rights is essential in realising fundamental
human rights – including the right to property, which international human rights
bodies have consistently interpreted as protecting the collective and customary
land rights of indigenous peoples and local communities; the right to food,
particularly where people depend on land for their food security; the right to
housing; and the rights of indigenous peoples to their ancestral territories. These
multiple considerations show that the land rights of rural people are at least as
deserving of legal protection as is foreign investment.
Ultimately, the interface between land rights and investment treaties reflects
an encounter and tension between different people – from the landless poor to
commercial farmers and global capitalists; different systems of property claims
– from local customary systems to international treaties; and different ways to
conceptualise land – as a commercial asset, or a source of social, cultural and
spiritual value. In the words of the late jurist Patrick McAuslan (2010, p. 203):
“There is a clash here of laws and cultures. At the formal national and
international level, it is the culture of globalization that impels the development
of laws and policies based on the free and equal opportunity to invest in land
so as to facilitate land being used to its highest and best purpose without
regard to such irrelevant matters as the nationality of the user. This sees land
as an economic and only as an economic asset. At the informal, local, popular,
customary, or traditional level (which exists as much in Europe and the USA as
in the developing world), it is the culture that sees land as a social and political
as much as an economic asset that resists land being parceled out to whoever
can pay for it to exploit it as is seen fit. A government that ignores the social
aspect of land — however retrogressive it may seem to devotees of the market
— does so at its peril. At best, there will be clashes on the ground between
investor and locals; at worst, ignoring local beliefs and attitudes to land can lead
and has led to widespread local violence and civil wars.”
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6.2 Recommendations for governments
Debates on economic globalisation are often framed in terms of “deregulation”
and “retreat of the state”. But states play a central role in shaping the legal regime
for cross-border investment flows. Concluding investment treaties is a key part
of this, and states are the primary actor in investment treaty making. States are
also the primary actor in land governance, including through law making and
implementation. Given the far-reaching implications that investment treaties can
have in multiple land governance areas, governments should:
●● Carefully
think through their policy choices about whether to conclude,
terminate or renegotiate investment treaties, and in what form. Some
evidence suggests that governments did not always fully appreciate the
implications of the treaties they were signing up to (Poulsen and Aisbett, 2013).
Yet investment treaties can have far-reaching ramifications in many policy areas,
requiring careful consideration. To enable informed choices, governments
should carry out systematic reviews of their existing stock of investment treaties
and of the actual or potential ramifications of these treaties, including for land
governance.
●● Promote
transparency in investment law and arbitration, to enable more
inclusive policy choices and facilitate better monitoring of the ways in which
investment treaties affect land rights. This involves opening up policy making
on investment treaties to public scrutiny and input, through creating spaces
for parliaments, social movements, civil society and citizens to influence
policy choices (see Section 6.3 below). It also involves ratifying the Mauritius
Convention on Transparency in Treaty-Based Investor-State Arbitration,
which was adopted by the UN General Assembly in 2014. The Convention
is a mechanism for states to express their consent to apply the UNCITRAL
Transparency Rules to disputes brought under investment treaties concluded
before 1 April 2014. The Rules automatically apply to UNCITRAL arbitrations
under treaties concluded after 1 April 2014.
existing investment treaty stocks, consider the implications of
investment treaties when designing and implementing land governance
action. For example, ill-conceived land allocations to foreign investors could
expose governments to liabilities stemming not only from the contracts but also
from any applicable investment treaties. Investment treaties can also have a
bearing when governments terminate, renegotiate or regulate land deals. These
considerations should not discourage socially desirable public action, and
foreign investors sometimes “overstate the reach of [investment] treaties in an
effort to dissuade certain policy decisions” (Peterson and Garland, 2010, p. 16).
But proper consideration of these issues may help governments to prevent or
mitigate liabilities through well-thought out conduct.
●● Given
●● Expedite
and upscale efforts to improve national land governance, through
implementing the VGGT. Where investment treaties risk compounding problems
rooted in shortcomings of national governance, an important part of the solution
lies in national-level action. Depending on context, this may involve recognising
and protecting land rights not currently protected by law and improving avenues
for transparency, public participation and accountability.
new investment treaties are negotiated, consider treaty formulations
that help to address the issues raised by the interface between land
rights and investment treaties. With regard to compensation standards,
for example, countries that have included considerations other than market
value in constitutional right-to-property provisions may wish to negotiate similar
considerations into investment treaties too. Governments should also align
compensation standards to those applicable under international human rights
law, which allow for greater flexibility than many investment treaties. Where
investment treaties do depart from constitutional or human rights standards,
governments should carefully think through the rationale for this differentiated
approach.
●● If
●● Consider
treaty clauses that commit the states parties to implement the
VGGT. This commitment could concern both the state in the territory of which the
land is located, and the state from which the investor originates. The latter aspect
would create a duty for home states to require their investors – or at least those
receiving public support – to adhere to the VGGT when operating overseas (see
VGGT paragraphs 3.2 and 12.15).
●● Consider
investment treaty provisions that spell out investor obligations to
comply with applicable law and possibly with specified international standards
of investor conduct in land matters. Depending on treaty formulations and the
nature of violations, breaches of applicable law and standards could exclude
the investment from treaty protection, or be a factor that arbitral tribunals must
consider in deciding the merits of the case.
generally, closely align any investment treaties they sign to pursuit
of sustainable development. A growing body of literature provides guidance
on how this might be done, including through options to safeguard regulatory
space (e.g. Mann et al., 2005; UNCTAD, 2012). Reconsidering the formulation
of new treaties is only effective if the most-favoured-nation clause does not allow
investors to claim more favourable treatment provided by pre-existing investment
treaties.
●● More
●● Ensure
that they have the capacity to comply with any investment treaties
they conclude. National land governance might provide a test case for
governments to assess their levels of capacity. Where capacity challenges
exist, governments may want to ensure that investment treaty commitments
are formulated in ways that recognise the differentiated capacities of the states
parties.
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6.3 Recommendations for parliaments, civil society and social
movements
Land is eminently political, and often emotive. Choices on whether to conclude
investment treaties, and in what form, are also political – different groups can
have different positions on desirable economic policies and acceptable balances
between competing policy goals. Legitimacy of political choices ultimately rests on
inclusive and informed debate. So addressing the interface between land rights and
investment treaties is not a government job alone:
●● Parliaments
should claim an important role in investment treaty making,
using any constitutional powers they may have in relation to investment treaties
(e.g. possible roles at treaty ratification stage) and more generally holding
debates, asking questions, raising issues, tabling motions, expressing policy
orientations and prompting the government to consider the issues raised by
social movements and civil society.
●● Social
movements including organisations of rural people and smallscale rural producers can play an important role in representing and
strengthening the voices of their constituents in national and international
policy processes. They can act as a convenor and catalyst for collective action,
leveraging strength in numbers and unity in communication. They can help raise
public awareness of the interrelatedness of multiple policy areas, including land
rights and investment treaties. They can also help create spaces for democratic
deliberation about desirable development pathways and ensuing policy choices
on land governance and investment treaties.
●● Civil
society organisations should remain vigilant and step up advocacy
on investment treaties and their implications for land rights. Awareness on
these issues remains limited, particularly in low and middle-income countries.
Civil society organisations can play an important role in promoting public
awareness and debate in these countries. They should develop practices and
methodologies to advocate and hold governments to account. They should
consolidate and expand arrangements for international alliance building
and lesson sharing on ways to influence public policy on land governance
and investment treaties. There is also growing experience with civil society
submissions to raise public and grassroots concerns in investor-state arbitration
proceedings.
●● Donor
agencies should support the efforts of governments, parliaments,
social movements and civil society, through both technical and financial
support, recognising that addressing the interface between land rights and
investment treaties is an integral part of strengthening land governance and
implementing the VGGT. This may involve mainstreaming of investment treaty
issues into country programming and supporting platforms for international
lesson sharing and documentation of best practice.
6.4 Reflections for a new research agenda
Legal research is often confined into neatly defined disciplinary spaces –
international investment law, international human rights law and comparative land
law, for example. But real-life situations often involve diverse bodies of national
and international law. The interface between land rights and investment treaties
illustrates the interrelatedness between seemingly distant policy areas.
That interface also illustrates the important limitations of the existing evidence
base: there is much doctrinal analysis about investment treaty provisions; yet the
practical implications of those provisions, including for land governance, remain
poorly understood. As discussed, for example, legal analysis shows that stringent
compensation requirements can make it more costly for states to implement
land reform; but there is still little empirical research on the extent to which these
requirements do in fact constrain land reform efforts.
Locating the discussion of investment treaties in specific issues or sectors can
enable a more fine-grained analysis of how investment treaties affect other areas
of law and practice, and how the ensuing challenges might be addressed. This may
involve more legal analysis, but also in-depth case studies on the political economy
of the operation of investment treaties.
Qualitative socio-legal research involving interviews with public officials, investors,
civil society, grassroots groups and other stakeholders could shed new light on the
ways in which investment treaties operate in real-life situations. This would include
situations where reliance on investment treaties affects investor-state negotiations
but does not result in publicly known arbitrations, and as such remains below the
public radar.
Land governance can provide a fertile arena for this type of research. This report
has charted some of the areas that follow-on socio-legal research could explore –
namely, land reform, “land grabbing” and land governance systems. The findings
can strengthen the evidence base and facilitate more informed policy debates and
choices on often emotive and politically sensitive issues.
6.5 Final remarks
The interface between land rights and investment treaties highlights the need
to place discussions about investment treaties in a wider context. Investment
treaties protect foreign investors and their investments, in the context of a bilateral
relationship between an investor and a government (reflected e.g. in the structure of
investor-state contracting and arbitration). But land-based investments can involve
or affect other actors too, including aspiring land reform beneficiaries and people
who may lose their land to business ventures. Multiple national and international
legal instruments apply, and an exclusive focus on investment treaties risks
producing biased outcomes, even in reform efforts.
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This situation calls for a more holistic approach to explore the operation of
investment treaties, which considers their interplay with other national and
international instruments and their implications for a wider range of actors. For
example, it is often said that investors would be reluctant to invest in countries
where legal systems are dysfunctional and judiciaries are biased and ineffective.
Yet the people whose lives are turned upside down by ill-conceived investments
often have little choice beyond their national legal system and courts.
Similarly, the doctrine of legitimate expectations protects investors and their
investments against adverse state conduct. Yet arguably citizens also have a
legitimate expectation that their government will manage public lands in the public
interest, and they should have effective recourse when they feel their expectations
have been frustrated.
These considerations require giving proper thought to the overall legal frameworks
that govern land and investment, of which investment treaties are but one important
part. Protecting the land claims of some, without also taking action to protect
different and potentially competing land claims, can entrench imbalances in both
legal rights and power relations. In the longer term, solutions should lie less in legal
arrangements that insulate foreign investment from shortcomings in national legal
systems, and more in establishing fair and effective land governance that can cater
for the needs of all.
References References
Cases
Abengoa S.A. y COFIDES S.A. v. Estados Unidos Mexicanos, Award, 18 April
2013, ICSID ARB(AF)/09/2.
AES Summit Generation Limited and AES-Tisza Erömü Kft v. The Republic of
Hungary, Award, 23 September 2010, ICSID ARB/07/22.
Asian Agricultural Products Ltd v. Republic of Sri Lanka, Award, 27 June 1990,
ICSID ARB/87/3.
Bernard Von Pezhold and Others v. Zimbabwe, ongoing arbitration, ICSID
ARB/10/15.
Bernardus Henricus Funnekotter and Others v. Republic of Zimbabwe, Award, 22
April 2009, ICSID ARB/05/6.
Biwater Gauff (Tanzania) Limited v. United Republic of Tanzania, Award, 24 July
2008, ICSID ARB/05/22.
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57
Land rights and investment treaties:
exploring the interface
The spread and deepening of economic globalisation has highlighted
the ever closer connections between the international legal
arrangements governing the global economy on the one hand, and
claims to land and natural resources on the other. In a globalised
world, land governance is shaped by international as well as national
regulation. As pressures on valuable lands intensify and land relations
become more transnationalised, increasing recourse to international
investment treaties is redesigning spaces for land claims at local and
national levels.
This report sheds light on how investment treaties can affect
land rights. It finds that investment treaties can have far-reaching
implications for land reform, for public action to address “land
grabbing” and more generally for land governance frameworks. The
report also charts directions for socio-legal research to explore how
investment treaties are affecting land rights on the ground.
ISBN : 978-1-78431-201-5
IIED order no.: 12578IIED
Research Report
Knowledge
Products
June 2015
Law
Keywords:
Investment treaties, Legal tools,
Land rights, Land grabs, Land
acquisitions

Land rights and investment treaties

Transcription

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